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Home My WebLink AboutCO 558 'magd Project Order File cover~age XHVZE This page identifies those items that were not scanned during the initial production scanning phase. They are available in the original file, may be scanned during a special rescan activity or are viewable C. direct insp~tion of the file. D .5 s ~ Order File Identifier Organizing (done) 111I1II111111111111 D Two-sided R:,7CAN ~ Color Items: D Greyscale Items: DIGITAL DATA D Diskettes, No. D Other, No/Type: o Poor Quality Originals: D Other: NOTES: , Date: Il ?JD O~ BY: ~ Project Proofing BY: ~ O'é Date: II 3D -' Scanning Preparation BY: ~) x 30 r + Date: II, '30 I Oç Production Scanning o Rescan Needed 1111111111111111111 OVERSIZED (Scannable) D Maps: D Other Items Scannable by a Large Scanner OVERSIZED (Non-Scannable) D Logs of various kinds: D Other:: m:J 1111111111111111111 mP = TOTAL PAGES I 7:J- (Count does not include cover sheet) ¡lVl J 151 f I f 1111111111111111111 151 151 Stage 1 Page Count from Scanned File: I 7 ð (Count does include cover sheet) VYES ýY}D BY: Page Count Matches Number in Sca~r i..ng prlpa~on: ~ Date: il30jD5 If NO in stage 1 page(s) discrepancies were found: Stage 1 BY: Maria Date: Scanning is complete at this point unless rescanning is required. ReScanned BY: Maria Date: Comments about this file: NO 151 YES NO 151 1111I111I1111111111 11111111111111111 Isl Quality Checked 111111111111111111I 10/6/2005 Orders File Cover Page. doc • Index Conservation Order 558 Three-Mile Creek 1. April 25, 2005 2. May 27, 2005 3. June 27, 2005 4. July 13, 2005 5. July 13, 2005 6. July 20, 2005 7. July 27, 2005 8. July 29, 2005 9. August 2, 2005 10. August 8, 2005 11. August 16, 2005 12. August 16, 2005 13. August 31, 2005 14. October 27, 2006 15. October 27, 2006 Aurora Gas application Three Mile Creek Pool Rules AOGCC Questions to operator re: application Aurora Gas further information for application Notice of Hearing, affidavit of hearing, e-mail mailing list, bulk mailing list e-mail to AOGCC from DNR re: copy of application Letter from CIRI to DNR re: Well Certification Application e-mail from operator re: questions DNR ltr to Aurora Gas re: Certified Capable of Producing in Paying Quantities Aurora Gas ltr to CIRI and DNR re: PA Redefinition Request DNR's ltr to Aurora re: Finding and Decision Amended Sign in sheet for Hearing Transcript Aurora Gas submittal of additional data Aurora Gas, LLC voluntarily dissolve of unit Aurora Gas, LLC Annual Reservoir Review Report 2005 Confidential Information located in Confidential Room under C0558 · COOK INLET PETROLEUM NEWS · WEEK OF AUGUST 21, 2005 Gathering line complete at Three Mile Creek Aurora Gas asking for tight 1vell spacing at west side Coolz Inlet gas field based on discontinuous Beluga jornlation sands By KRISTEN NELSON PrtmlelUlI New.s Editor-ill-Chief Aurora Gas and its patiner Forest Oil havc completed a gathcring linc at thcir Three Mile Creek natural gas field on the west sidc of Cook Inlet, Randy Jones, Aurora's manager of land and ncgotiations, said Aug. 16. Joncs was tcstifying at an Alaska Oil and Gas Conservation Commission Three Mile Creek pool t11les hearing. Aurora drilled the Three Mile Creek Unit No. I discovery well late last year. Four Ueluga and Tyonek zoncs were tested in January, but the Tyonek zones were non-commercial and were plugged back. Combined Beluga sand intervals test- ed this spring had a now rate of approxi- mately 5 million cubic fcet a day. (See sto- ries on Three Mile Creek in the Aug. 14, .luly 31 and July 24 issucs of Petroleum News.) Jones said the Beluga sand resclvoir Three Mile Crcek is discontinuous, requir- ing closely spaced wells. Aurora has Aurora has requested well spacing of approximately 60 acres, and noted in its pool rules application that well spacing in the Beluga River gas field varies between 40 and 80 acres per well, while Beluga formation gas wells in the Kenai gas field have well spacing of 48 to 56 acres per well. requcsted well spacing of approximately 60 acres, and noted in its pool rules application that well spacing in the Beluga River gas field varies betwcen 40 and 80 acres per well, while Bc1uga fOlmation gas wells in the Kenai gas field have well spacing of 48 to 56 acres per well. The commission can permit closely spaced wells on an individual basis, or approve eIose well spacing as pali of pool rules for the field. Aurora has applied for pool \1Jles for Thrcc Mile Creek. Jones said, because pool rulcs are more efficient than spacing exceptions, each of which takes six weeks to obtain. 2-D seismic shot ot field Commissioner Dan Seamollnt asked how Aurora determined that the :-;allds a( Three Mile Creek were discontinuous. Jones c::lÌd thc dctcllllination was bascd on well Aurora drilled thelhrce MIlC Llcc!\. I~IJ. I well beginning late last year and tested it beginning in January, with more work done earlier in the summer. The well is now hooked up to the gathering line, Jones said, and the two additional weUs planned could be hooked up more quickly. since the gath- ering line is now in place. Wells at Thrce Mile Creek will produce from multiple sands. Commissioner Cathy Foerster asked if the commingling of gas at the well would allow reservoir management, and Jones said all production was lì'om the Tsuga interval in the Beluga sands, with each interval producing different amounts. Production began in mid-August from the shallower sands. Water in the wel1 bore [¡'om January dtilling damaged some of the lower sands, he said, and Aurora hopes those sands wiU elean up by themselves. 1 f not, fracture stimulation would be rcquired. Chainnan John Nomlan said the com- mission wanted as much data public as pos- sible and asked Jones to review with com- mission staff how much of the company's application could be made public. He said that while Aurora's application was generally very complete, if the applica- tion had been contested, the lack of a geolo- gist to testi ry would have hurt the compa- ny's case and asked that in the future Aurora have a geologist present to answer ques- tions. . ) ) STATE OF ALASKA ALASkA OIL AND GAS CONSERVATION COMMISSION 333 West 7th Avenue, Suite 100 Anchorage Alaska 99501 Re: THE APPLICATION OF AURORA GAS, LLC for an order to establish pool rules for development of the Three Mile Creek Beluga Gas Pool, Three Mile Creek Unit, Cook Inlet Basin, Alaska ) Conservation Order No. 558 ) ) Three Mile Creek Unit ) Three Mile Creek Beluga Gas Pool ) ) October 7,2005 IT APPEARING THAT: 1. By application dated June 27, 2005, and received by the Commission on June 28, 2005, Aurora Gas, LLC ("Aurora") in its capacity as Unit Operator of the Three Mile Creek Unit ("TMCU"), requested an order fÌ'om the Commission to define a proposed Three Mile Creek Beluga Gas Pool and to prescribe rules governing the development and operation of the pool. 2. Notice of a public hearing was published in the Anchorage Daily News on July 13, 2005. 3. The Commission held a public hearing August 16, 2005 at 9:00 AM at the Commission's offices at 333 West 7th Avenue, Suite 100, Anchorage, Alaska. 4. Aurora submitted additional information to the Commission in support of their application on July 27, September 2, and September 12,2005. FINDINGS: 1. Development Area: The area proposed for development is located within the central and southern portion of the TMCU approximately five miles west of the Beluga River Unit on the western side of the Cook Inlet. 2. Landowners, Owners, and Operator: The proposed development area lies within one State of Alaska lease, ADL 388233, and two Cook Inlet Region Incorporated ("COO") leases: C-061394 and C-061502. The State of Alaska and COO are the respective landowners of these leases. Aurora and Forest Oil Corporation are joint working interest owners of the leases. Aurora is the Operator of the properties within the development area. 3. Pool Identification: The proposed Three Mile Creek Beluga Gas Pool is an accumulation of hydrocarbons common to, and correlating with, the interval between 1,700 feet and 5,531 feet MD in the TMCU No.1 well. Conservation Order 558 October 7, 2005 ) ) Page 2 4. Delineation History and Development Plans: During December 2004, Aurora drilled the TMCU NO.1 discovery well ftom a surface location in Section 35 to a bottomhole location in Section 34 of T13N, Rl1 W, Seward Meridian ("S.M.") reaching a total measured depth ("MD") of 8,180 feet, 8,011 feet true vertical depth ("TVD"). The well produced gas in potentially commercial quantities ftom six sand intervals within the Tertiary-aged Beluga Formation ("Beluga") during two separate well tests. Aurora plans to drill two additional delineation wells within Section 34 of T13N, Rll W, S.M., and to construct a 5-mile long natural gas transmission pipeline from the TMCU Central Pad to the Lone Creek gathering line. First gas sales are projected in the third quarter of 2005. 5. Stratigraphy/Reservoir Prop~rties: The TMCU contains dry gas within reservoir sandstones of the Beluga. The Three Mile Creek Beluga Gas Pool is comprised of many isolated fluvial channel sandstone reservoirs. The entire reservoir system was deposited in braided and meandering river channels. Based on characteristics seen in nearby wells and in the Beluga River Unit, individual trapping mechanisms are expected to be lenticular and discontinuous over the areal extent of the TMCU and form a complex reservoir system. The system displays a high proportion of lithic ftagments and organic debris, and clay content ranging ftom 18 to 20%. Porosity in the sandstone ranges ftom 12 to 20% and averages 15%. Permeability ranges fÌ'om 1 to 20 millidarcies and averages 5 millidarcies. Gas- water contacts have not been observed, but are expected to occur at varying depths because of the discontinuous nature of the reservoir. Obtaining commercial gas flow from this low permeability reservoir system requires commingling of production ftom multiple intervals within production wells. The composition of the gas within the pool is 99% methane, and it has a specific gravity of 0.565. The original reservoir pressure measured 1,452 psia at 2,933 feet TVD. 6. Structure: The Three Mile Creek structure is a north-south trending anticline bounded by a sealing fault to the west and three-way structural closure to the north, east and south. The closed area on the crest of the structure conforms to the proposed pool area. Aurora proposes a single Three Mile Creek Beluga Pool encompassing all of the currently identified Beluga sandstones of reservoir quality within the field. Geologic structure appears to be the main control over gas accumulations within the pool; however, future drilling may encounter on- structure or off-structure stratigraphic traps that contain gas. The pool will also include any undiscovered new Beluga sandstones that might be found by future wells drilled within the reservoir system. 7. Trap Configuration: Structural elements are believed to be the dominant gas- trapping mechanisms, but the discontinuous nature of the Beluga channel sands suggests stratigraphic trapping of gas may also occur, although stratigraphic trapping has never been confirmed in Cook Inlet Basin. Future drilling may establish whether stratigraphic traps are present on the flanks of the Three Mile Creek structure. Conservation Order 558 October 7, 2005 ) Page 3 8. In-Place Gas Volume and Recovery Factor: The Three Mile Creek Beluga Gas Pool is currently estimated to contain 50 to 60 billion cubic feet of gas in-place. Approximately 90 percent of that gas is expected to be recoverable. 9. Reservoir Management: Aurora requests 60-acre wellbore spacing to maximize resource recovery from the complex, low permeability Beluga sandstones. Aurora plans to commingle production ftom separate Beluga sandstones to offset low flow rates ftom individual sandstones. To ensure optimal resource recovery, Aurora proposes to limit commingled producing intervals to within 2,750 vertical feet within the same wellbore. 10. Reservoir Surveillance: Aurora proposes to conduct a single pressure survey on a selected, key well at least once per year. Bottomhole pressure may be computed by extrapolating surface measurements to bottomhole conditions. All reservoir pressure measurements will be referenced to a datum of 2,933 feet TVD. Flow contribution and detection of cross flow within the pool will be accomplished through the use of production logs. 11. Wellbore Construction: Aurora proposes that wells drilled in the Three Mile Creek Beluga Pool have a surface casing point between 600 feet TVD and 1,000 feet TVD. Aurora has requested the Commission not establish requirements for surface or subsurface safety valves fQr wells drilled to the pool. CONCLUSIONS: 1. Pool Rules for the development of the Three Mile Creek Beluga Gas Pool within the TMCU are appropriate at this time. 2. Reservoir delivery and well operability will be the initial focus of TMCU development. 3. Closely spaced wells will be required to effectively drain this complex, low permeability sandstone reservoir system. 4. Production ftom individual Beluga sandstones will need to be commingled to compensate for poor inter-well reservoir continuity and anticipated low individual sandstone productivity. 5. Regular monitoring of reservoir performance will ensure proper management of the pool and ensure greater ultimate recovery. 6. Setting surface casing between 600 feet TVD and 1,000 feet TVD will provide adequate well control. In order to isolate potential shallow gas-bearing zones and to protect fteshwater, surface and production casing strings will need to be cemented to surface. Conservation Order 558 October 7, 2005 ) Page 4 NOW, THEREFORE, IT IS ORDERED: The following rules, in addition to the statewide requirements under 20 AAC 25 (to the extent not otherwise superseded by these rules), apply to development operations for the Three Mile Creek Beluga Gas Pool within the following affected area: Seward Meridian Township-Range, SM Sections TI2N, Rll W Section 03: W/2 ofNW/4, NE/4 ofNW/4 Section 04: NE/4, N/2 of SE/4 TI3N, R11 W Section 26: SW/4 of SW/4 Section 27: S/2 ofNE/4, SE/4, E/2 of SW/4 Section 34: E/2 ofNW/4, E/2 of SW/4, E/2 Section 35: W/2 ofW/2, W/2 ofE/2 of SW/4 Rule 1 Pool Definition The Three Mile Creek Beluga Gas Pool is defined as gas-bearing sandstone intervals common to, and correlating with, the intervals between the measured depths of 1,700 feet and 5,531 feet in the Three Mile Creek NO.1 exploration well. Rule 2 Well Spacinl!: Spacing units shall be a minimum of 60 acres. The Three Mile Creek Beluga Gas Pool shall not be opened in any well closer than 1,500 feet to any external boundary where ownership or landownership changes. Rule 3 Wellbore Construction Practices a. Surface casing point shall be set between 600 feet TVD and 1,000 feet TVD, and cemented to surface. Production casing shall also be cemented to surface. b. Wellbores shall not be perforated for production through intervals exceeding 2,750 vertical feet. Rule 4 Annual Reservoir Review An annual report must be filed by the operator on or before April 1 of each year. The report shall present an overview of reservoir performance, future development and reservoir depletion plans, and surveillance information for the prior calendar year, including: a. Reservoir pressure map at a datum of 2,933 feet TVD; b. Summary and analysis of reservoir pressure surveys within the pool; c. Results and, where appropriate, analysis of production, temperature and tracer surveys, observation well surveys, and any other special monitoring surveys; Conservation Order 558 October 7,2005 ) ) Page 5 d. Estimates of yearly production subdivided by major contributing zones; e. Progress of plans and tests to expand the productive limits of the pool. Rule 5 Administrative Action Unless notice and public hearing are otherwise required, the Commission may administratively waive the requirements of any rule stated above or administratively amend any rule as long as the change does not promote waste or jeopardize correlative rights, is based upon sound engineering and geoscience principles, and will not result in an increased risk of fluid movement into fteshwater. DONE at Anchorage, Alaska and date /~ Daniel T. Seamount, Jr., Commissioner Alaska Oil and Gas Conservation Commission c~¿~d::::: Alaska Oil and Gas Conservation Commission AS 31.05.080 provides that within 20 days after receipt of written notice of the entry of an order, a person affected by it may file with the Commission an application for rehearing. A request for rehearing must be received by 4:30 PM on the 23rd day following the date of the order, or next working day if a holiday or weekend, to be timely tiled. The Commission shall grant or refuse the application in whole or in part within 10 days. The Commission can refuse an application by not acting on it within the 10-day period. An affected person has 30 days :&om the date the Commission refuses the application or mails (or otherwise distributes) an order upon rehearing, both being the final order of the Commission, to appeal the decision to Superior Court. Where a request for rehearing is denied by nonaction of the Commission, the 30 day period for appeal to Superior Court runs :&om the date on which the request is deemed denied (i.e., lOth day after the application for rehearing was filed). Citgo Petroleum Corporation PO Box 3758 Tulsa, OK 74136 Mona Dickens Tesoro Refining and Marketing Co. Supply & Distribution 300 Concord Plaza Drive San Antonio, TX 78216 Jerry Hodgden Hodgden Oil Company 408 18th Street Golden, CO 80401-2433 Kay Munger Munger Oil Information Service, Inc PO Box 45738 Los Angeles, CA 90045-0738 Mark Wedman Halliburton 6900 Arctic Blvd. Anchorage, AK 99502 Ciri Land Department PO Box 93330 Anchorage, AK 99503 Gordon Severson 3201 Westmar Cr. Anchorage, AK 99508-4336 James Gibbs PO Box 1597 Soldotna, AK 99669 Richard Wagner PO Box 60868 Fairbanks, AK 99706 Williams Thomas Arctic Slope Regional Corporation Land Department PO Box 129 Barrow, AK 99723 ) Mary Jones XTO Energy, Inc. Cartography 810 Houston Street, Ste 2000 Ft. Worth, TX 76102-6298 Robert Gravely 7681 South Kit Carson Drive Littleton, CO 80122 Richard Neahring NRG Associates President PO Box 1655 Colorado Springs, CO 80901 Samuel Van Vactor Economic Insight Inc. 3004 SW First Ave. Portland, OR 97201 Schlumberger Drilling and Measurements 2525 Gambell Street #400 Anchorage, AK 99503 Ivan Gillian 9649 Musket Bell Cr.#5 Anchorage, AK 99507 Jack Hakkila PO Box 190083 Anchorage, AK 99519 Kenai National Wildlife Refuge Refuge Manager PO Box 2139 Soldotna, AK 99669-2139 Cliff Burglin PO Box 70131 Fairbanks, AK 99707 North Slope Borough PO Box 69 Barrow, AK 99723 ) David McCaleb IHS Energy Group GEPS 5333 Westheimer, Ste 100 Houston, TX 77056 George Vaught, Jr. PO Box 13557 Denver, CO 80201-3557 John Levorsen 200 North 3rd Street, #1202 Boise, ID 83702 Michael Parks Marple's Business Newsletter 117 West Mercer St, Ste 200 Seattle, WA 98119-3960 Baker Oil Tools 4730 Business Park Blvd., #44 Anchorage, AK 99503 Jill Schneider US Geological Survey 4200 University Dr. Anchorage, AK 99508 Darwin Waldsmith PO Box 39309 Ninilchick, AK 99639 Penny Vadla 399 West Riverview Avenue Soldotna, AK 99669-7714 Bernie Karl K&K Recycling Inc. PO Box 58055 Fairbanks, AK 99711 ~ {j-I le~. 01 o /2-' I ~o 558 Three Mile Creek ) Subject: CO 558 Three Mile Creek From: Jody Colombie <jody_colombie@admin.state.ak.us> Date: Tue, 11 Oct 2005 12:09:26 -0800 m I '.;.:II' 1 d I ,'. , 't ' , 'I", 'III, ' , "" I I '" I 'I , I I " , I 'I II " " " " ...0: unulSC, os~ -:J;ecl:Rlen s~; I I I ,'"',, '",' ", I" III 'I'" 11"1'1 I' I"" : "I I' I I" III I' ',I" I, I'" I , I ' , ' ",, I' '" , I' I I I 'I I ,", ,II II' " ' I "" 'I " " , I" " ',, 'I , BeC: Robert g Mintz <robert mintz;~aw.state.ãk;~uS1' Ghtistine Hansen' 'I 1I1111 I " 11" I I, I ,I ' I, < h ' @,."" t ,t'" 11~' ....... ~T . 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II. I',', '@'~ '~'I' ',1,1,,'1,",1,'1'" I " I , , teece < e .s ~ec~ ~~ate.s .~s~~, ~crotty I~~~r~~tx ~ll¿.~.c~m::r,IJeJQpes:';geJpn~~ ~~q~~p01¥e~'r9mi>,' dapa <dapa@alaska.net> ,'jroderi~kl18rode~ick@~çLnep ," eyabcy, ~~YfU1cy@seal.,.t~t'1;p~t>'" "J~yS M. Ruud" <janies.m.ruud@conoconhillips.com>, B:rit"Lively <;:mapalaska@ak.net>,jab:,' '"I:, I", I,' , I " , , I I I' , I 1'i , 'I I ' , I' ,', I I I "I ,I I I, I' I I I , <jah®drir.state'~'l1s~,~¥¡-t' E qlsR~, <k~_olso~@It(~is.~tate,.~.u~>, Ibuonpj~ <b~~~~je®qp'~~rh~' ',I Ma1"~ H@ley<11lark:.haJtleX@~~d#~o.'cOp1>, lQren~le~~'~lo~e~ ~le~~~göv~s~at~.åJ¿1;4~~,~ql~~' Hotile<julie _houl~@dnr;state.ak'l1s>, Jol1nW~atz'~\Vk~tz@~so,.org~,' Sl.1:zan~:,Hin:,:'"" '.,"..', <suzan_ hill@dec.state.~.tls>, tablerk <ta1?ler~@ll1199~li~cQ,1Il;>,Brady <brady@aoga.org>,ßriån Havelock <beh@dnr~state.ak.us>,.bpopp.<bpopp@þorqugh~ken~d.akus>,·''!im.White''·' ..'. ' <j imwhite@satx.rr.com> , "John S . Haworth" <j ohn~s.haworth@exxonmobi1.com>, maI1y <marty@rkindustrial.com>, ghammons <ghammons@ao1.com>,. nnclean <nnclean@pobox.alaska.net>, mkm 7200 <mkm 7200@ao1.com>, Brian Gillespie <ifbmg@uaa.alaska.edu>, David L Boelens <dboelens@aurorapower.com>, Todd Durkee <TDURKEE@KMG.com>, Gary Schultz <gary_schultz@dnr.state.ak.us>, Wayne Rancier <RANCIER@petro-canada.ca>, Bill Miller <Bill_Miller@xtoalaska.com>, Brandon Gagnon <bgagnon@brenalaw.com>, Paul Winslow <pmwinslow@forestoi1.com>, Garry Catron <catrongr@bp.com>, Shannaine Copeland <copelasv@bp.com>, Kristin Dirks <kristin_dirks@dnr.state.ak.us>, Kaynell Zeman <kjzeman@marathonoi1.com>, John Tower <John.Tower@eia.doe.gov>, Bill Fowler <Bill_Fowler@anadarko.COM>, Vaughn Swartz <vaughn.swartz@rbccm.com>, Scott Cranswick <scott.cranswick@mms.gov>, Brad McKim <mckimbs@BP.com>, Steve Lambe <lambes@unocal.com>, jack newell <jack.newell@acsalaska.net>, James Scherr <james_scherr@yahoo.com>, david roby <David.Roby@mms.gov>, Tim Lawlor 10f2 10/11/2005 12: 10 PM :0 558 Three Mile Creek ) ) 20f2 10/11/2005 12:10 PM :0558 1 of 1 ) Subject: CO 558 From: Jody Colombie <jody_colombie@admin.state.ak.us> Date: rue, 11 Oct 2005 12:10:01 -0800 'f. Ö:,.,G....·.\t.hiág,M¿iv,.'~r,'I;<b· rêhl'.fuêi~èr.@' ··'·'a)'dm'·n··"'.!st&te.åK;'ü.;'>,.,,' ; (, I"Y'µ""I: .::: ", ."1,',",1' ", 1'1,1', ' 'I I,. ,'" :: ':,'I'II",--:~:,I:':II ".' ~!,,'d:; I, ,:,' ;'I'~:I',:,I:'I ,~, 'I'I'~II.': :'1', ,,' ''''li':,'I', ",I,§,' 'iI':: <'\(:;,,;,":i,!;::':iil::; ) , "1 Content-Type: applica¡¡onlmswordi I C0558.doci I I : Content-Encoding: base64 ..."." 10/11/2005 12:10 PM X15 • • ^:~Aurora Gas, LLC www.aurorapower.com ?~ _as~l~. ~9ii1l~@5~"~talZ October 27, 2006 Mr. John Norman Alaska Oil and Gas Conservation Commission 333 West 7~` Avenue, Suite 100 Anchorage, AK 99501-3539 RE: Conservation Order No. 558 THREE MILE CREEK BELUGA GAS POOL Dear Mr. Norman: Enclosed is the Annual Reservoir Review Report for the Three Mile Creek Beluga Gas Pool. The Pool rules issued on October 7, 2005, require an annual report each year by April 1 for the prior calendar year. Unfortunately this deadline of April 1, 2006, was missed for the 2005 Report. However, all of the significant reservoir data that was available at the end of the 2005 calendar year had been submitted for the pool rules application, except for MDT data taken in the Three Mile Creek Unit #2 well in November 2005. This MDT data along with completion testing data for the #2 and shut- in pressure data from the #1 well collected so far in 2006 has been incorporated into this Report. Included in this Report is a Form 10-412, Reservoir Pressure Report, for the Pool, including all pressures taken since the Pool rules were issued. (This report is also being submitted now so that current critical reservoir information is provided to parties interested in the Three Mile Creek Unit Plan of Development and Expansion/Contraction Review due November 1, 2006). Please call me at 713-977-5799 in if you have questions or need additional information. Sincerely, . Edward Jones Executive Vice Presid~t, Engineering and Operations cc: Forest Oil-Jim Arlington ADNR-DOG-Kristin Dirks CIRI Kim Cunningham 2500 Citywest Blvd., Suite 2500 • Houston, Texas 77042 • (713) 977-5799 • Fax (713) 977-1347 1400 West Benson Blvd., Suite 410 • Anchorage, Alaska 99503 • (907) 277-1003 • Fax (907) 277-1006 • • AURORA GAS, LLC THREE MILE CREEK UNIT ANNUAL RESERVOIR REVIEW REPORT RE: CONSERVATION ORDER NO.558 HISTORY AND SUMMARY AS OF 10/20/06 BACKGROUND Aurora Gas, LLC, as Unit operator, and joint-venture partner, Forest Oil, directionally drilled the Three Mile Creek Unit (TMCU) #1 well in December 2004 to a depth of 8185' MD (8016' TVD). The well was completed and tested in January 2005, including several cased-hole DST's. The deeper objective Upper Tyonek Carya sands were wet, deeper Beluga (Tsuga) sands were unproductive, but Beluga sands between 3530' and 4606' MD (3377-4439' TVD) proved to be productive. Due to the winter weather and expenses related thereto, the operations were suspended until May 2005, when a smaller rig was moved onto the well and the testing of the Beluga sands continued. The well was completed selectively with packers 2501' and 3455' (MD), isolating the earlier tested 3530-4606' perforations (115' of net perforations in 6 sets) from those tested in May between 2570' and 3317' MD (2453-3172' TVD, 111' net feet in 8 sets). The rig was moved off and 4-point tests were conducted, facilities and gathering pipeline constructed, and the well was put on stream to sales in August 2005. The Lower Completion was initially put on stream alone, but as pressures declined, the sliding sleeve isolating the Upper Completion was opened and all the perforations were open for production. As of 9/30/06, the well had produced 932 MMcf of gas and is currently is producing 1100 mcfpd at 260 psi FTP (with compression). See the attached well bore diagram. In October-November of 2005, the TMCU No. 2 was directionally drilled from a new pad to north of the #1 well to a depth of 5225' MD (4822' TVD). This well was drilled to test the same Beluga sands found to be productive in the #1 well horizontally at least 1500' away from the #1 well bore and to test some shallower Beluga sands behind the surface casing and production casing in the #1 (and therefore not tested there). Extensive logging was done for evaluation, with MDT pressures (Schlumberger's updated RFT tool) finding some depletion of the sands producing in the #1. The well was completed and tested, with disappointing results. However, a multiple selective completion was run with 4 packers and the rig was released. In May and June of 2006, each of the three completions in the well were retested, and a satellite facility was installed along with a flowline to tie it into the #1 facility. This well initially produced in August 2006. Due to lack of sustained flow from the Middle Completion, a remedial "mud" acid treatment was performed on that zone in September. The well is currently producing to compression and sales from the commingled Lower and Middle Completions at about 500 mcfpd at 360 psi. See attached well bore diagram. • • CONSERVATION ORDER N0.558 REQUIREMENTS This Order issued October 7, 2005, by the AOGCC has requirements pertaining to an annual reservoir review at Three Mile Creek, requiring: 1) An annual report filed by the Operator on or before April 1 of each year presenting an overview of reservoir performance, future development, reservoir depletion plans, and surveillance information for the prior calendar year including 2) Reservoir pressure map at datum of 2933 feet TVDss; 3) Summary of reservoir surveys within the pool; 4) Results and, where appropriate, analysis of production, temperature and tracer surveys, etc. ANNUAL REPORT Due to the activity involved with the TMCU #2, the deadline of April 1st was missed, with the intention of getting more information from the #2 before submitting the report. Also, the information submitted for the Pool Rules Application in late 2005 included most of the information available for the # 1 well until the pressures in early 2006. Post-completion data from the #2 well has finally been collected and is included in this report. Some of the information regarding the TMCU #1 that was previously submitted for the Pool Rules application is being resubmitted with this report. ANNUAL MONITORING OF RESERVOIR PRESSURES Attached is a Form 10-412 for the Pool (TMC Beluga-Undesignated) showing reservoir pressures taken since the initial tests of the #1 well in early 2005 (and submitted as part of the Pool Rules application) along with some comments. Note that there were two tests of well #1 pressures (both in 2006), both utilizing surface pressures taken with a quartz-crystal "SPIDR" and extrapolated to the 2933' TVD datum (-2622' TVDss) using a Great Reservoir Engineering Excel macro, PresslnWellBore. Both of these pressures show depletion from production in the # 1 well bore. The Form 10-412 lists 4 pressures in the #2 well: the MDT pressure near datum of -2622' TVDss, extrapolated to that datum, and final pressures of the buildups for each of the 3 completions following the initial 4-point test (not related to datum of -2622' TVDss, but to show initial pressure of each completion at mid-perf depth). Note that the pressure at the datum of 2933' TVD (-2633' TVDss) in the #2 well on November was 1335 psi (1350 psia), indicating depletion of 102 psi from the initial (original) reservoir pressure of 1452 Asia as measured at that depth in #1 in December 2004. (Note that surface pressures have been used exclusively for reservoir pressures determination after the initial pressures in the #1 well [except for open-hole MDT's in both wells], as neither well has made much water, so they are consistently in single-phase condition). • • Also attached is a summary of MDT data from both wells, comparing the pressures measured in stratigraphically equivalent sands. The # 1 well had been on production for about 3 months at the time of the #2 MDT tests, and it (# 1) had produced 290 MMcf of gas by that time. Observations from comparing the MDT's in the 2 wells: 1) There was apparent depletion in 6 sands common to the two wells, three of which were depleted by more than 100 psi after 3 months of production of the # 1 well. 2) There may have been same cross flow in the # 1 well bore into one sand (Tsuga 2-5.4), as that sand had 74 psi higher pressure in the #2 than the #1 well, but: a) the pressure gradient from surface in #2 was consistent with gradients of other nearby sands, and b) the # 1 MDT pressure may not have been entirely valid, i.e., low, as the interval was tested twice and second test was 24 psi higher than first, with the gradient believable but lower than sands above and below it; therefore, cross flow is not necessarily indicated. 3) Material balance (P/Z vs. production volumes) methods were used to allocate production back to each depleted sand, assuming that the other sands did not produce any significant volume---i.e., of the 9 sands perforated in the #1 well, it appears from the MDT's in the #2 only 6 were apparently productive. However, one of the sands, the Tsuga 2-5.1, was completed in the #1 but did not appear to be productive on the logs of the #2 and was therefore not tested with the MDT tool. Based on these tests, it appears that 49% of the production from the # 1 had come from the Tsuga 2-4.3 at 2726-2752' MD, which had the best log attributes in the well. (See attached Material Balance Calculations for more details). Note, however, that the sands in the #2 well with apparent depletion in excess of 100 psi were not perforated-this may explain the poorer performance of the #2 well (although formation damage is believed to be the larger culprit). The reservoir pressure survey data and production data from the#1 well has been plotted to yield P/Z vs. Cumulative Production curves, providing amaterial-balance projection of reserves. That plot (using Ryder Scott Excel template) is attached. It indicates that the #1 well will have an EUR of 1268 MMcf of which 932 MMcf had produced thru 9/30/06. Note, however, that the last shut-in pressure was taken after only 48 hours shut-in, so it may be still building and therefore low, but also that it plotted above the curve, which could indicate that some of the tighter sands are now contributing to the production and that the EUR may actually be higher. Volumetrically, it appears that the EUR for the #1 should be in excess of 3000 MMcf, but the completion is known to be ineffective due to formation damage, as indicated by the very high skin factors calculated from pressure buildup tests (see attached analyses of the initial individual tests of the Lower Completion and Upper Completions, indicating initial skin factors of 50 and 9, respectively). Also see, the attached production and pressure vs. time plot, which seems to indicate that the production is leveling out, again indicating clean up of formation damage and/or contribution of tighter sands as the well bore pressures decline. • • RESERVOIR DEVELOPMENT AND DEPLETION PLANS TMCU #1-- As mentioned previously, the #1 well has been on production since August 2005 and is now producing from all perforations, at 2570-4606' MD. The performance of this well is monitored daily and has been very stable as of late. The expectation is to continue producing the well to depletion with annual pressure surveys and possible production logs in the event of water production or other significant change in production rates or pressures. No additional development in this well bore is anticipated. TMCU #2-This well is now producing from the Lower and Middle Completions, but the flow rate is disappointing. When the pressure has depleted a bit more, the Upper Completion will again be opened, and all perforated intervals will be commingled. If performance does not improve, several options will be considered including fracture stimulation and perforating additional intervals, possibly including those perforated in # 1 but not in #2. General Pool Plans: Due to the nature of the Beluga sands in the field, it appears that improvements are needed in completion practices. These sands are tight (low permeability) and dirty (made up of high % of silt and clay, as much as 40% and 25%, respectively). These characteristics make the Beluga susceptible to formation damage from movable fines, swelling clays, and relative permeability of gas vs. water (water blockage). Thus, it appears that close attention to details of drilling, drilling fluids, cementing, perforating, and well killing aze needed for successful completions. The operator is doing research into these matters, utilizing service companies and special labs to develop comprehensive completion procedures that will avoid or remedy this formation damage and improve reservoir permeability (especially near well bore) . Included in these studies is the evaluation of potential stimulation, such as acid treatments and hydraulic fracturing. Side-wall core samples of producing sands from the wells are now undergoing a fluid sensitivity study by Omni Labs to determine the effects of Schlumberger OCA acid (much like the "mud" acid used on the #2 well) and varying concentrations of KCl in treatment waters. As a result of these studies, the operator expects to propose remedial work in the existing wells and/or (more likely) different procedures for the drilling and completion of additional wells. TMCU #3: Depending upon the outcome of these formation damage/completion practices studies, the operator expects to propose the drilling of the #3 in early 2007 at a location to the south of the # 1 well. The well may be drilled as a straight hole (both others have been directional) and to a shallower depth to reduce costs and improve economics. Any recommended changes to drilling and completion procedures coming from the on-going studies will likely be tried at this well, attempting to improve both production rates and ultimate recoveries. Additional development of the Pool is very dependent upon the outcome of the next well. RESERVOIR PRESSURE MAP AT DATUM Attached is a pressure map of the Three Mile Creek Beluga--Undesignated Pool, showing initial and more recent pressures at the datum of 2933' TVD or -2622' TVDss. Since there are only two points at which pressures were taken (the #1 and #2 well bores) and since all the pressures were taken on different dates with different cumulative production volumes from the reservoir, no valid pressure contours can be drawn. • • Ed Jones (10/26/06) STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION RESERVOIR PRESSURE REPORT 1. Operator: 2. Address: AURORA GAS, LLC 1400 West Benson, Ste.410, Anchora e, AK 99503 3. Unit or Lease Name: 4. Field and Pool: 5. Datum Reference: 6.Oil Gravity: 7. Gas Gravity: THREE MILE CREEK BELUGA UNIT Three Mile Creek Beluga--Undefined Feet Subsea NA 0.562 8. Well Name and 9. API Number 10.Oil (O) 11. AOGCC 12. Final Test 13. Shut-In 14. Press. 15. B.H. 16. Depth Tool 17. Final 18. Datum NDss 19. Pressure 20. Number: 50-XXX-X~CXX-XX-XX or Gas (G) Pool Code Date Time, Hours Surv. Type Temp. NDss Observed (input) Gradient, Pressure at (see Pressure at psi/ft. Datum (cal) instructions for Tool Depth #1 50-283-20108-00-00 G 776500 02/16/06 145 PBU 76 311 646.1 -2622 0.015 691.5 #1 50-283-20108-00-00 G 776500 09/13/06 48.75 SBHP 76 311 505.9 -2622 0.012 5 All perfs open for both tests: 2570-4606' MD = 2453-4439' TVD. Datum is 2933' ND (=-2622'TVDss) as per Pool Rules. #1 well had produced 570 Mmcf of as at the time of the 2/16/06 pressure. #1 well had produced 913 Mmcf of as at the time of the 9/13!06 pressure. #2 50-283-20116-00-00 G 776500 11/09/05 NA--initial RFT 87 -2614 1335 -2622 OA31 1335.2 Open-hole MDT pressure taken upon drillin the well at 3305' MD = 2924' ND = -2614' NDss, the approximate strati raphic equivalent of -2622' NDss in #1.. #2 50-283-20116-00-00 G 776500 05/08/06 132.25 PBU 82 295 1405.2 -3489 0.036 1541.9 Lower Completion pressure buildup after 4-point test, perfs at 3507-4892' MD = 3118-4480' ND. #2 50-283-20116-00-00 G 776500 05!13/06 24 PBU 71 295 961.7 -2164 0.023 1017.4 Middle Completion pressure buildup after 4- oint test attempt. Perfs at 2502-3114' MD = 2204-2744' ND. #2 50-283-20116-00-00 G 776500 05/28/06 71.3 PBU 65 295 838 -1671 0.017 872.2 U per Completion pressure buildup after 4-point test. Perfs at 2192-2272' MD = 1948-2014' ND. All of the above pressures except RFT were taken from "SPIDR" at surface and were extrapolated to bottom-hole pressure usi~ Great Engineerin Pressure-In-Welfbore Excel templa tes. 21. All tests reported herein were made in accordance with the a plicable rules, regulations and instructions of the Alaska Oil and Gas Conservation Commission. I hereby certify that the fore is tru d correct to the st of y knowledge. /^'- ~J Signature Title G,I~C~, ~/~ 1"/~.T/ c~~°~I~ Printed Name . E ARD JONES Date 10/23/2006 Form 10-412 Rev. 9!2003 INSTRUCTIONS ON REVERSE SIDE Submit in Duplicate STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION RESERVOIR PRESSURE REPORT 1, Operator: AURORA GAS, LLC 2. Address: 1400 West Benson, Ste.410, Anchorage, AK 99503 3. Unit or Lease Name: THREE MILE CREEK BELUGA UNIT 4. Field and Pool: Three Mile Creek Beluga--Undefined 5. Datum Reference: Feet Subsea 6. Oil Gravity: NA 7. Gas Gravity: 0.562 8. Well Name and Number: 9. API Number 50-XXX-~CXXX-XX-XX 10. Oil (O) or Gas (G) 11. AOGCC Pool Code 12. Final Test Date 13. Shut-In Time, Hours 14. Press. Surv. Type (see instructions for 15. B.H. Temp. 16. Depth Tool TVDss 17. Final Observed Pressure at Tool Depth 18. Datum TVDss (input) 19. Pressure Gradient, psi/ft. 20. Pressure at Datum (cal) #1 50-283-20108-00-00 G 776500 02/16/06 145 PBU 76 311 646.1 -2622 0.015 691.5 #1 50-283-20108-00-00 G 776500 09/13/06 48.75 SBHP 76 311 505.9 -2622 0.012 All perfs open for both tests: 2570-4606' MD = 2453-4439' TVD. Datum is 2933' TVD (=-2622'TVDss) as per Pool Rules. #1 well had produced 570 Mmcf of gas at the time of the 2/16/06 pressure. #1 well had produced 913 Mmcf of gas at the time of the 9/13/06 pressure. #2 50-283-20116-00-00 G 776500 11/09/05 NA--initial RFT 87 -2614 1335 -2622 0.031 1335.2 Open-hole MDT pressure taken upon drilling the well at 3305' MD = 2924' TVD = -2614' TVDss, the approximate stratigraphic equivalent of -2622' TVDss in #1.. #2 50-283-20116-00-00 G 776500 05/08/06 132.25 PBU 82 295 1405.2 -3489 0.036 1541.9 Lower Completion pressure buildup after 4-point test, perfs at 3507-4892' MD = 3118-4480' TVD. #2 50-283-20116-00-00 G 776500 05/13/06 24 PBU 71 295 961.7 -2164 0.023 1017.4 Middle Completion pressure buildup after 4-point test attempt. Perfs at 2502-3114' MD = 2204-2744' TVD. #2 50-283-20116-00-00 G 776500 05/28/06 71.3 PBU 65 295 838 -1671 0.017 872.2 Upper Completion pressure buildup after 4-point test. Perfs at 2192-2272' MD = 1948-2014' TVD. All of the above pressures except RFT were taken from "SPtDR" at surface and were extrapolated to bottom-hole pressure using Great Engineerin g Pressure-In-Wellbore Excel templates. 21. All tests reported herein were made in accordance with the applica le rules, regulations and instructions of the Alaska Oil and Gas Conservation Commission. I hereby certify that the foregoing is and c ct to the best o my kn wledge. Signature Title ~ XtC • t/ ~ CC ~C,I/ ~-, f" Printed Name J. EDW JONES Date 10123!2006 Form 10-412 Rev. 912003 INSTRUCTIONS ON REVERSE SIDE Submit in Duplicate ~ ~ THREE MILE CREEK FIELD BELUGA PARTICIPATING AREA ~`'~ 1 _ - ~ I ~r I' i+', ~ '~' /r~~ ~ J ` ~_7}~RGf M~~:E~RE~'K UtF~ ~~ ~ i ~~ .. 1/2 MILE ~'~ r;~ ~~';;,- (' ~ ' ~ ~ 1 ~ ~~ DATUM -2622' TVDSS ' ~r T~i1~E~ W LE CRE .~'~;~~~ ~' 11/9/05 - 1335 psig ' ~ , r _ ~ ~, DATUM -2622' TVDSS ~f ~ ; ~ , ' ~ 12/18/04 - 1437 psig f%~ l~'~ ,;off i ~' /~ ; ~~ ~ +n 2/26/06 - 692 psig ;~ ~~ f! __; ~ ~ ; 9/13/06 - 540 psig ; i ; ~'~ ` ° ~~; 't i ~'' r ~ ;~ ~ 1' -- - -.~-.~--- I~r' i. I' y'-'----^ J ~+ fi i ~ ~~~..f~ rte. .~ - ~ i ~,' '~ M ~ J' ~ i 4 :° ~z_ .r t _ ,, I TMC _ ~- ~' ~ ~ BELUGA --. ' PA ~+3~4~ _ °o uv ~:. _ y.~' / ~ TSUGA 2)415 °~ ~ Y :;AS EXTENT f 4p ~~ - TSUGA 2-4.5 DEPTH STRUCTURE CONTOURS, C.I. 100 FEET Aurora Gas, LLC CJ Three Mile Creek Unit No. I ~ Aurora Gas, LLC Current Well Configuration 05/20/05 See attached completion As-Built for specific Information Displaced 3 1/2" x 7° annulus and id of3'/:" tbg w/ 1%- 2%inhibifed brine 120 bbls. Open Beluga Perfs: 2570' - 2594' 2726'- 2750' 2948'- 2954' 2980' - 2988' 3062' - 3082' 3156' - 3162' 3170' - 3178' 3302' - 3317' Open Beluga Perfs: 3530' - 3545' 3556' - 3566' 3662'-3672' 3683' - 3703' Open Beluga Perfs: 4505' - 4535' 4576' - 4606' Beluga perforated 5606' - 5636', 5668' - 5698', 5710' - 5720'. (5439' - 5553' TVD) Zone Tested, tight, trace gas, no water produced. Abandoned Upper Tyonek perforated at 7750' - 7779' MD (7581' 7610' TVD). Zone Tested wet w/ oo gas. Chlorides 14,000 ppm. Abandoned Aurora Gas, LLC 13 5/8" SM a 11" SM Vetco MBS wellhead installed at surface with BPV installed, tree tested to 5000 psi. 13 3/8" 48# H-40 conductor driven to 110 ft minimum. 3 1/2" 9.3#, 8rd EUE tubing. 12 1/4^ hole directionally drilled to 2440' MD (2329' TVD). 9 5/8" 40# BTC K-55 Casing to 2438' MD (Cemented with 254 bbls 14.5 ppg Gas-Block cement slurry system to surface. 7^ Halliburton PHL Ret/Flyd set packers at 2501.6 ft and 3455 ft. Sliding sleeves at 2458 ft, 2799 ft and 3405 ft. "X" nipple at 3498'. Please see Attachment I for completion detail lalliburton ES Cementer Stage collar installed in 7^ casing at 3857'. ,asing cemented in two stages. 135 ibis 13.5 ppg gss-block cement pumped @ second stage with returns o surface. Tsgged st5410' iced 6.15 bbls "G° w/ 1% CaCt BP set at _ 5560' Tagged at 7554' reed 6.14 bbls "G" on top of er ~" Retainer set at 7700' on 16-Jan-0S to isolate fyonek perfs and was pressure tested to 3000 psi 26# BTC N-80 to 8113' MD 44' TVD) PBTD at Baffle Plate '0' MD. 1" stage cemented w/ 189 s 13.5 ppg gas block type cement and shoe. FIGURE 1 Page 7 of 7 77rret Mile Crcek Unit Na I o gprpe Gear ~{,{, Crlmnt Wr0 Canfrgurotkrn OSl10/BS See atteehed eomolstlon As-Bulk Ior soecMk Inrorm.rlon IS S/U" SM z 11" SM Vdrn MB8 weBhud Inrldkd vt rurfvice MW BPV matvBeQ Tree rood w Se00 pal D4placed 3 1/2" :7" vmWm 2%Inhiblted brine - 1211 bb6. 306I'-31182' JI36' -3162' J170' -J17U• 3302'-3317' Opeu Bela{a Pere: 3530' -3343' 3556' -3366' 3683' -3707' open Hew{. pem: I 1505' - 4535' J 4576'-4606' Belugs perforvted 5606' - 3636', 3668'-3698', 371 U' -~ -57zU'. (3439'-5553' TVD) Tone 7erted, dgh4 trace gu, vo water pnduccd. A6vudueed Upper'Ironek perfenmd vt 773U' - 7779' MD (/581' 7610' rvD} lane Tmmd -~- wNw/oo qm. fhkdda I/,UW ppm. Abvndoned U 3d1" 488 RJg muducwr amen m Its n min~ram. 3 I/3" 9.3M, Brd EUE mbin{. I2 u4^ bn4 mrernnn.ny arluea to 2440' MD (2329' TVD). 9 Sdi" 4W HTC K-35 Cvring w 2/38' MD ICemeead with 234 666 1/.3 ppq Gu-Block cemm[ ilurry ryrtem m mrfort Summary of Comments on Microsoft Word -FINAL OPERATIONS AND COMPLETION REPORT TMCU-1.doc 7" H.Wburtoe PHL Ret/Hyd ra P a g e: 1 sllamg dean a x4ss ft, z799 rt Author: Ed and 3105 R "X^ nipple rt 3198'. PN~v. rase AtbchrrmMlNr Subject: Note camn,.rrorrdnr„ Date: 10/18/2006 8:21:40 PM "UPPER COMPLETION" 2453' - 3172' TVD rlllburton ES Cementer Sm{e pumped ~ rewnd uvge with remnr to wrfa<e TOC Tugged vt 5/10' rnrp4rea 6.IS 6m. "c" w/ 1 ~ c.cr 7" CUdP rd vt - 336U' TOC Tugged vt 7331' Dlrplviced 6.11 hb4 "G" oe mp of nmincr 7" Retainer ret at 77W' w 06JveA3 m 6clvh Tyooek perk vnd war prearan tested w30W ql 7" 36M HTC N-80 m 8113' MD (7944' TVD) PHTD a Bvme flue BU7U' MD. 1" rtvge nmmted w/ 189 664 13.3 pp{ pr Mode ryye nmep[ wand rhae FIGURE 1 Author: Ed Subject: Note Date: 10/18/2006 8:22:07 PM LOWER COMPLETION 3377' - 4439' TVD • • Aurora Gas, LLC Page 7 of 7 tiAurora Gas, LLC Displaced 2 7/8" x 5.5" annulus and tubing w/ 1%- 2% inhibited brine • 13 3/8" 72# H-40 conductor drilled to 80't 2 7/8", 6.5#, 8rd EUE tubing 12 1/4" hole drilled to 1021' MD , 975 TVD. 9.625" 36# BTC J-55 Casing to 1019" MD, Cemented with 14.5 ppg Gas-Block Type I cement slurry system to surface ;ker @ 2150' MD UPPER COMPLETION Perfs 2192-2212',2232-2272' (1948-2014'TVD) MIDDLE COMPLETION Perfs 2502-2512', 2535-2550', 2683-2703', 3104-3114' (2204-2744' TVD) LOWER COMPLETION Perfs 3507-3537', 3744-3754', 3895', 4135-4150', 4427• 4771-4781',4882-4892' (3118-4480' TI~U • Three Mile Creek Unit No. 2 Final Well Configuration sing Sleeve at 2775' iliding Sleeve at !290' 'acker @ 2475' MD iliding Sleeve at !514' iliding Sleeve at 3148' 'acker @ 3475'MD .5#, J-55 casing set MD ~,ememed with Class G LJ THREE MILE CREEK MDT PRESSURES TMC #1 TMC #2 KB=328' 12118!2004 KB=310' SAND DEPTH DEPTH MDT MDT is DEPTH DEPTH MD7 MD TVD DEPTH Grad f/Surf MD TVD DEPT (PERFSI TVD (osilftl IPERFS- TVD 11/9/2005 MDT psl DEPLETION Grad f/Surf Delta P (DSi/ftl asia COMMENTS Tsuga 2-6.4 LOWER COMPLETION LOWER COMPLETION 4578 4409 4428 2295 4882 4470 4475 2227 68 Some depletion? 4608 4439 0.518 4892 4480 0.498 Tsuga 2-6.3 4505 4338 4344 1A18 4771 4360 4361 2259 -1183 Poor test in #1 4535 4368 0.248 4781 4370 0.518 No de letion from radient Tsuga 2-6.1 4412 ? 3975 1888 4427 4022 4027 2088 Low pressure/gradient 0.470 4447 4042 0.519 in #1 Tsuga 2-5.7 Not tested in #1 3990 3825 4135 3734 3743 1502 Poor test? 4005 3840 4150 3749 0.401 Not rforated in #1 Tsuga 2-5.5 3662 3505 3536 1833 3875 3479 3490 1802 31 0.516 gradient 3703 3544 0.518 3895 3499 3494 1451 Poor test 0.417 Tsuga 2-5.4 3530 3377 3385 1637 3744 3340 3344 1711 -74 Crossflow/charge 3566 3412 3406 1661 3754 3360 0.512 in #1 well bore? 0.488 Tsuga 2-5.2 UPPER COMPLETION 3302 3158 3154 1644 3507 3118 3128 1601 43 Some depletion? 3317 3172 0.521 3537 3147 0.512 Tsuga 2-5.1 3156 3017 3033 1417 MIDDLE COMPLETION Not tested in #2 3178 3038 0.467 Tsuga 2-4.5 3062 2927 2932 1452 3289 2909 2924 1350 102 Depletion 3087 2950 0.495 3314 2932 0.462 Tsuga 2-4.4? 2985 2851 1360 Not perPd in either 0.477 Tsuga 2-4.3C 2950 2819 2817 Test Failed 3104 2735 Not tested PerPd in #2 2988 2855 3114 2744 Tsuga 2-4.3 3016 2661 1289 0.484 2726 2606 2606 1215 2938 2583 2752 2628 2619 1209 2958 2601 2597 915 300 Significant depletion 0.462 0.352 Tsuga 2-4.2 2570 2453 2442 Test Failed 2772 2435 Apparent depletion, 2592 2475 2792 2452 2442 1017 112 Est using gradients 0.416 0.416 vs..462 sift Tsuga 2-4.1 Behind 2 strings of casing 2583 2357 Not tested in #1 2703 2375 2371 1087 0.458 Tsuga 2-4.0 Behind 2 strings of casing 2535 2232 2243 1027 Not tested in #1 2550 2244 0.458 Tsuga 2-3 Behind 2 strings of gsing 2502 2204 Not tested in #1 2512 2212 UPPER COMPLETION 2232 1981 1889 901 Not tested in #1 2272 2014 2008 908 0.452 2192 1948 Not tested in #1 2212 1965 1955 901 0.461 • C7 NOTES: 1) Highlighted depths (MD's) above indicate pertorated depths 2) The zones with the most depletion in the #2 (from the #1) were not perforated in the #2. At the time of the #2 MDTs on 11/9/05, #1 had produced 290 MMcf from the open parts (highlighted)-all were commingled. See SHEET 2 for MATERIAL BALANCE C8lulations indicating production from each sand as of 11!9/05. AURORA GAS, LLC THREE MILE CREEK UNIT MATERIAL BALANCE CALCULATIONS ESTfMATED PRODUCTION PROM OPEN INTERVALS !N #7 based on: Gas Produced= {(Pi /Zi)- (P2/Z2))`(Res Vol'Tsc)/(T'Psc) where Tsc= 460 Psc= 14.65 DEPLETED INTERVAL NET SAND DRAINAGE RES RES INITIAL 11/09/05 11/9105 GAS % of DE PTH THICKNESS POR Sw AREA VOLUME TEMP P INITIAL P Z PRODUCE D ft % % acres MCF deg R psis Z psia MMCF TOTAL Tsuga 2-6.4 4576 4606 15 15% 53% 77 3999.79 572 2295 0.85 2227 0:852 18.92 6.52% Tsuga 2-5.5 3662 3706 22 16% 49% 77 5650.15 567 1883 0.855 1802 0.857 31.18 10.74% .Tsuga 2-5.2 3302 3317 11 16% 52% 77 2973.76 562 1644 0.859 1601 0.861 9.04 3.11% Tsuga 2-4.5 3062 3087 16 17% 52% 77 4744.07 560 1452 0.878 1350 0.874 29.03 10.00°k Tsuga 2-4.3 2726 2752 22 18% 52% 77 6714.95 553 1215 0.878 915 0.904 141.70 48.81% Tsuga 2-4.2 2570 2592 19 19% 62% 77 7349.15 552 1132 0.884 1017 0.895 60.47 20.83% ACTUAL PRODUCTION FROM TMCU #1 TO DATE OF MDT PRESSURES= 290 MMCF 290.34 100.00°h • • FIELD: COUNTY, STATE: RESERVOIR: Wichert-Aziz correction f WELLHEAD TEMP, °F: IOTTOMHOLE TEMP, °F: WET GAS GRAVITY: TVD, FEET: 2,933 COND. CORR1 (Y/N): N Corrected` Tc, °R: 343.03 Corrected" Pc, Psia: 671.54 2,000 1, 800 1,600 1,400 ~ 1,200 .~ a N 1,000 a x m 800 600 400 200 0 0 200 400 600 800 1,000 1,200 1,400 1,600 Cumulative Production, MMcf POINT NUMBER (Automatic) DATE (Optional) SITP, Psia BHP, Psia Z BHP/Z, Psia CUM PROD, MMcf LSMF Include? (Y/N) -- - - 1 -- - -- 6/18/2005 1,452 0.8390 - - -- - - 1,731 8 n 2 2/17/2006 810 ~ I 0.9002 900 570 y 3 - 6/18/2005 ------ -- -- 1,414 0.8419 1,680 8 y 4 9/15/2006 521 556 -- -- - 902 _ Y ___ - -- i - _ -- - - - Point #1 uses pressure measured by MDT tool at 2933' TVD. Point #2 uses calculated p' from pressure buildup of commingled zon Point #3 is average p' based on measured BHP following 4-point tests - _ ~ es using SPIDR pressures. of 2 completions later commingles -- #4 from SPIDR (SI 48 hrs)--may still be bldg . THREE MILE CREEK -- - - WEST SIDE OF COOK INLET, KENAI PEN. BOR., AK ALL BELGUA PERFS 2570-4606 or contaminants, if any 35.0 SOUR GAS MOLE 76.2 NZ 1.20 Y-Interce 0.562 COZ 0.23 OGIP, M. ~ •LSMF Data o Excl. Data • EUR = 1,268 • OGIP = 1,355 ~ Cyder Scott ~} Reservoir~`~ Solutions ~~ (Public) 'Prnterterl) l ,bb5 1, 355 These results were prepared using Ryder Scott's Gas Material Balance. This is not Ryder Scott work product. TMCU 1 10000 1000 100 10 1 ~MCFPD ~-- T Press • Jun-05 Jul-05 Aug- Sep- Oct-05 Nov- Dec- Jan-06 Feb- Mar- Apr-06 May- Jun-06 Jul-06 Aug- Sep- 05 05 05 05 06 06 06 06 06 • THREE MILE CREEK FIELD PERFORATING AND TESTING SUMMARY TMCU 1 LOWER COMPLETION (3530-4606' Gross interval, 115' perfs) --2 TCP runs using 4-1/2" PURE System guns (Jan. 2005) --Tested 1.8 MMcfpd at 375 psi from 55' at 3530-3703 --4.22 skin, k=1.07 md, Calc AOF=1942 mcfpd --Tested +/- 200 mcfpd from 60' at 4500-4606' --Tested combined interval at 680 mcfpd at 3 i 8 psi (June 2005) --50.81 skin, Delta Pskin= 1188 psi, k=2.64 md, Calc AOF=712 mcfpd UPPER COMPLETION (2570-3317' Gross Interval, 111' perfs) --Perforated in multiple runs at same set up in 10.2 ppg brine w/ 4-1/2" HSC PJ charges w/ 5 SPF & 72 deg phasing (May 2005) --Combined interval tested 2.3 MMcfpd at 918 psi (June 2005) --9.19 skin, delta Pskin=138 psi, k= 6.0 md, Calc AOF=5940 mcfpd PRODUCED ALL THE ABOVE COMMINGLED -averaged 4.0 MMcfpd 1St month --Feb. 2006 buildup test indicated skin of 1.8, k=2.0 and --produced 0.929 BCF thru 9/30.06, still at 1.1 MMcfpd at 260 psi TMCU 2 -- Drilled to 5307' MD/ 4899' TVD in November 2005 • • TESTED GAS IN BELUGA SANDS AT 2192-4892' MD --All zones were perforated in multiple runs at single set up in 9.7 ppg brine w/ 3-1/2" HSC PJ guns (Nov. 2005) --LOWER COMPLETION (115' net perfs between 3507-4892') -190 mcfpd at 285 psi. SITP-1381 psi in Nov 2005 --714 mcfpd at 325 psi w/ 1405 psi SITP in May 2006 --Calculated AOF (May 4-pt test}-757 mcfpd --MIDDLE COMPLETION (55' net perfs between 2502-3114') --391 mcfpd at 320 psi w/ SITP-831 psi in Nov --would not flow for 4-point test in May --treated with Mud Acid in September --flowed 388 mcfpd at 230 psi --UPPER COMPLETION (50'net perfs between 2192-2272') --304 mcfpd at 322 psi. SITP-703 psi in Nov --1107 mcfpd ay 550 psi w/ 825 psi SITP in May --Calculated AOF (May 4-point test}-1950 mcfpd L' Ryder Scott Reservoir } ~ ~ Solutions ?~ (Public) (Protected) WELL NAME: THREE MILE CREEK UNIT NO. 1 FIELD: THREE MILE CREEK UNIT LOCATION: KENAI BOROUGH, ALASKA RESERVOIR: BELUGA--LOWER PERFS (353a ~o,ooo r--~,-T BOTTOMHOLE TEMP, °F: 93 SOUR GAS MOLE % GAS GRAVITY: 0.560 Nz 1.00 Ha0 GRAVITY, 7„,: COz 0.00 COND. GRAV., °API: HZS 0.00 I TVD. FT: 3.450 1 MEAS. DEPTH, FT: 3,600 Options Cond. Corral. (Y/N): N ~ ~~ If Injection Weil Corrected"` Tc, °R: 343.63 ~ Corrected' Pc, Psia: 671.94 ~ Smooth Pipe Roughness Pressure Base, Psia: 14.650 TUBING ID, IN.: 2.992 '• Wichert-Aziz correction for contaminants, if airy RESULTS AOF, Mcf/d: 1,942 C: 0.000740 n: 1.000000 0 x a 1,000 a a too too t,ooo to,o~ Flow Rate, Alcfid POINT NO. Test Data FLOWING (Automatic) Q, Mcfld BCPD BWPD FTP, Psia WHT, °F BHP, Psia COMMENT SHUT-IN 0 0 0 1,474 44 1,620 SIBHP 1 412 0 0 1,115 42 1,209 2 1,196 0 0 635 44 686 3 1,414 0 0 440 44 476 4 1,579 0 0 340 44 369 5 1,841 0 0 389 44 423 These results were prepared using Reservoir Solutions Software. This is not Ryder Scott work product. • THREE MILE CREEK N0. 1 PRESSURE BUILDUP AFTER FLOW TEST BELUGA PERFS--2570-4606' open SURFACE PRESSURES ONLY START TIME 14:50:00 2/10/2006 (FSIP BUILD UP) BHT= 76.2 76.8 t= 5764.5 MID PERF= 3140' used (avg of 2570-3703 MD Surface P CALC 2998.5 2453 3544 TVD DATE TIME DELTA T SPIDR BHP SURF t+Delta U COMMENTS TIME ON REC HRS PSiA PStA DEG F delta t 2/10/2006 0.0000 Start Recorder at 13:36:00 on 2/10/06 13:36:00 13:46:00 0.1667 13.200 48.3 Atmospheric pressure 14:00:00 0.4000 372.400 44.2 Open to flowing well 14:15:00 0.6500 372.570 41.9 Well averaged 14:30:00 0.9000 372.284 40.1 2374 98.94 mcflhr or 2374 mcfpd last 15 hours 14:50:00 1.2333 0 373.406 376.33 38.9 Shut Well In for Buildup 14:51 1.2500 0.0167 394.004 419.00 39.0 345179.81 14:52:00 1.2667 0.0334 439.819 468.02 38.9 172590.40 14:53:00 1.2833 0.0500 468.641 498.78 38.9 115290.72 CUM PROD= 540785 reported 14:54:00 1.3000 0.0667 488.574 520.14 38.8 86425.08 23382 Feb 1-10 sales 14:55:00 1.3167 0.0834 502.812 535.37 38.8 69119.54 722 Fuel gas 2/1-10 14:56:00 1.3333 0.1000 513.309 546.60 38.8 57645.86 5449 Initial Test Volumes 14:57:00 1.3500 0.1167 521.219 555.70 39.0 49396.77 570338.3 mcf 14:58:00 1.3667 0.1334 527.127 561.39 39.0 43213.04 14:59:00 1.3833 0.1500 531.800 566.39 38.9 38430.91 15:00 1.4000 0.1667 535.400 570.25 38.9 34581.00 15:01 1.4167 0.1834 538.700 573.78 38.9 31432.22 15:02 1.4333 0.2000 541.300 576.57 38.8 28823.43 15:03 1.4500 0.2167 543.544 b78.93 39.7 26602.23 15:04 1.4667 0.2334 545.407 580.93 39.6 24698.88 15:05 1.4833 0.2500 546.937 582.57 39.5 23058.94 15:07 1.5167 0.2834 549.417 585.23 39.3 20341.46 15:09 1.5500 0.3167 551.300 587.28 39.1 18202.72 15:11 1.5833 0.3500 553.000 589.09 39.0 16470.96 15:13 1.6166 0.3833 554.300 590.48 38.9 15040.10 15:15 1.6500 0.4167 555.543 591.82 38.8 13834.66 15:20 1.7333 0.5000 558.000 594.46 38.6 11529.97 15:25 1.8167 0.5834 559.988 596.60 38.4 9881.85 15:30 1.9000 0.6667 561.644 598.38 38.2 8647.30 15:35 1.9833 0.7500 563.237 600.10 38.1 7686.98 15:40 2.0667 0.8334 564.640 601.60 38.0 6917.83 15:45 2.15 0.9167 565.971 603.03 37.9 6289.30 15:50 2.2333 1.0000 567.087 604.23 37.8 5765.49 15:55 2.3167 1.0834 568.224 605.46 37.7 5321.74 16:00 2.4000 1.1667 569.156 606.46 37.6 4941.65 16:10 2.5667 1.3334 570.692 608.11 37.5 4324.15 16:20 2.7333 1.5000 572.141 609.68 3~.3 3843.99 16:30 2.9000 1.6667 573.464 611.10 37.2 3459.62 16:45 3.1500 1.9167 575.102 612.87 36.9 3008.51 17:00 3.4000 2.1667 576.650 614.54 36.6 2661.49 17:15 3.6500 2.4167 578.020 616.02 36.4 2386.27 17:30:00 3.9000 2.6687 579.300 617.40 36.4 2162.66 17:45 4.1500 2,9167 580.446 618.63 36.2 1977.37 18:00 4.4000 3.1667 581.489 619.76 36.1 1821.34 18:30 4.9000 3.6667 583.423 621.85 35.8 1573.12 19:00 5.4000 4.1667 585.143 623.71 35.5 1384.47 19:30 5.9000 4.6667 586.650 625.33 35.3 1236.24 20:00 6.4000 5.1867 588.061 626.86 35.1 1116.70 20:30 6.9000 5.6667 589.377 628.24 34.8 1018.26 21:00 7.4000 6.1667 590.626 629.63 34.6 935.78 21:30 7.9000 6.6667 591.721 630,62 34.4 865.67 22:00 8.4000 7.1867 592.787 631.97 34.2 805.34 22:30 8.9000 7.6667 593.710 632.97 34.0 752.89 23:00 9.4000 8.1667 594.751 634.10 33.8 706.85 23:30 9.9000 8.6667 595.615 635.04 33.6 666.13 2!11!2006 0:00 10.4000 9.1667 596.509 636.00 33.5 629.85 1:00 11.4000 10.1667 598.392 638.04 33.2 568.00 2:00 12.4000 11.1667 600.010 639.78 33.1 517.22 3:00 13.4000 12.1667 601.520 641.41 33.0 474.79 4:00 14.4000 13.1667 602.932 642.93 32.9 438.81 5:00 15.4000 14.1667 604.287 644.39 32.7 407.90 8:00 16.4000 15.1667 605.501 645.70 32.7 381.08 7:00 17.4000 16.1867 606.741 647.03 32.6 357.57 8:00 18.4000 17.1667 607.770 648.13 32.7 336.79 • 9:00 19.4000 18.1667 608.852 648.93 32.8 10:00 20.4000 19.1667 609.888 650.39 32.7 11:00 21.4000 20.1667 610.831 651.41 32.7 12:00 22.4000 21.1667 611.734 652.36 33.1 13:00 23.4000 22.1667 612.632 653.30 33.5 14:00 24.4000 23.1667 613.501 654.23 33.6 15:00 25.4000 24.1867 614.401 655.18 33.8 16:00 26.4000 25.1667 615.172 656.00 34.0 17:00 27.4000 28.1667 615.942 656.82 34.0 18:00 28.4000 27.1667 618.704 657.85 33.9 19:00 29.4000 28.1667 617.437 658.44 33.7 20:00 30.4000 29.1667 618.188 659.25 33.7 21:00 31.4000 30.1667 618.852 659.97 33.5 22:00 32.4000 31.1667 619.508 660.70 33.1 23:00 33.4000 32.1687 620.169 861.43 32.8 0:00 34.4000 33.1667 820.806 662.12 32.6 3:00 37.4000 36.1667 622.659 664.14 31.9 6:00 40.4000 39.1667 624.401 686.01 32.1 9:00 43.4000 42.1667 626.059 867.79 32.2 12:00 48.4000 45.1667 627.611 869.42 32.7 15:00 49.4000 4$.1687 629.090 671.04 32.2 18:00 52.4000 51.1667 630.480 672.54 32.0 21:00 55.4000 54.1667 631.827 674.03 31.4 0:00 58.4000 57.1667 633.135 675.47 30.8 3:00 61.4000 60.1667 634.428 676.89 30.3 6:00 64.4000 63.1667 635.662 678.26 29.5 9:00 67.4000 88.1867 638.786 679.54 28.3 12:00 70.4000 69.1667 638.016 680.80 29.4 15:00 73.4000 72.1667 639.173 681.95 30.9 18:00 76.4000 75.1667 640.264 683.15 30.3 21:00 79.4000 78.1667 641.341 684.34 29.9 0:00 82.4000 81.1667 642.419 685.50 29.8 3:00 85.4000 84.1667 643.432 686.60 29.7 6:00 88.4000 87.1667 644.450 687.70 29,6 9:00 91.4000 90.1667 645.433 688.75 29.6 12:00 94.4000 93.1867 646.519 689.80 31.4 15:00 97.4000 96.1867 647.486 690.75 32.8 18:00 100.4000 99.1687 648.357 691.77 31.5 21:00 103.4000 102.1667 649.258 692.83 30.0 0:00 106.4000 105.1887 850.178 893.86 29.5 4:00 110.4000 109.1667 651.326 695.08 29.8 8:00 114.4000 113.1667 652.502 696.35 29.6 12:00 118.4000 117.1667 653.600 697.49 30.1 16:00 122.4000 121.1667 654.763 698.47 32.8 21:21 127.7500 126.5167 855.049 698.99 31.0 23:58 130.3667 129.1334 655.692 699.68 30.9 3:00 133.4000 132.16673 656.195 700.18 31.6 6:00 136.4000 135.16673 657.195 701.28 31.5 9:00 139.4000 138.16673 657.872 701.99 31.6 12:00 142.4000 141.16673 659.699 703.92 32.1 15:00 145.4000 144.16673 660.481 704.68 33.3 16:00 146.4000 145,16673 660.673 704.86 33.7 16:11 146.5833 145.35 660.779 704.97 33.7 17:37 2/17/2006 7:59 405.773 410.17 35.2 8:00 162.4000 13.6 35.8 318.31 301.76 286.84 273.34 261.05 249.83 239.53 230.05 221.30 213.19 205.66 198.64 192.09 185.96 180.21 174.80 2/12/2006 160.39 148.18 137.71 128.63 120.68 113.66 107.42 101.84 2!13/2006 96.81 92.26 88.12 84.34 60.88 77.89 74.75 72.02 2/14/2006 69.49 67.13 64.93 62.87 80.94 59.13 57.42 55.81 2/15/2006 53.$0 51.94 50.20 48.57 opened well for fuel gas-dropped to 557 psi 46.56 45.64 2/16/2006 44.82 43.65 42.72 41.83 40.98 40.71 40.66 Open well for fuel gas Final SITP Start to sales Flowed at 129 mcfthr or 3096 mcfpd for first 6.2 hours Fiarving TP (on compression) Remove SPIDR Average production for first 30 hours was 2926 mcfpd • p*= 811.09 psia Pwf= m= 65.95 psi/Cycle 0= gravity= 0.562 Z= T~ 344 deg R Tr- Pc= 672 psis Pr- Tres= 536.2 deg R net pay= cg= 0.000697 -psi ct= Cr- 3X10**-6 P1 hr- vis u1= 0.0112 u/u1= 1.15 u Bg= 0.0201805 d/scf kh= • 376.330 psia 2374 mct/d 0.927 1.56 0.88 135 (perfs) 0.000317 -psi 604.23 psis (from plot of log delta t vs. bhp) = 0.01288 CP 283.3347444 k= 1.95 and (original tests yielded k's of s= 1.64 delta Pskin= 105.36 psia reality ck: Pwf w/o skin 481.69 upper lower ORIGINAL p*s were 1193 and 1640 at 2796 ft 8 3445 ft ND 90 ft net pay & 45 ft net pay Ed Jones 3/11/2006 6 and 2.6 md, up & Iwr) (original s's were calculated at 50.8 and 9.2, Ivvr 8 upr) Approx composite original p* to Compare to this p* at 3000' ND: Q3000'= 1198.253 (upper) 1615.457 (kwver) Comp original p'= 1337.321 psia NOTE-SURFACE PRESSURES ON SPIDR IN PSIA. TMCU 1 BUILDUP JAN 06 a a a m • LOG DELTA T -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 TMCU 1 BLDUP JAN 06 soo. o0 700.00 600.00 500.00 a a 400.00 m 300.00 200.00 100.00 0.00 0.0000 1.0000 2.0000 3.0000 4.0000 5.0000 6.0000 ,,+SI BHP BUILD UP LOG T+DT/DT • ~ ~~ Ryder Scott Reservoir ~_a'~ Solutions (Public) (Protected) WELL NAME: THREE MILE CREEK UNIT NO. 1 _ FIELD: __ LOCATION: _ RESERVOIR: BELUGA-LOWER PERFS (3530-4606'-tested BOTTOMHOLE TEMP, °F: 81 SOUR GAS MOLE GAS GRAVITY: 0.560 Nz 1.00 N20 GRAVITY, y„,: COZ 0.00 _ COND. GRAY., °API: HZS 0.00 1 TVD. FT: 3.445 1 MEAS. DEPTH, FT; 3,600 Options Cond. Corral. (Y1N)_ N ^ ~~ If Injection Well Corcected" Tc, °R: 343.63 ~ _ Corrected* Pc, Psia: 671.94 ~ Smooth Pipe Roughness Pressure Flaw, Psia: 14.650 TUBING ID, IN.: 2.992 ~"` Wichert-Aziz correction for contaminants, if any RESULTS _ AOF, Mcf/d: 712 C: 0.000900 n: 0.918525 ~.ww ~ - --- -- ----- ---- _ _---j - ~ -_.____ -i ~ ----~ ~ - - -I ---- ~ ~-_-_-r - - --- t -- - - i ~ - - ! _ ~ ; - : - - - i,oo0 - ~ - -1 - - _ --~ --- ---- F---- ~-- ~ - - -- -~ - -- - ~~ ~ - I }~ ~ ~-- i ~ I i ~ ~ 0 x a` na 400 ~,ooo Fbw Rate, MCf/d POINT NO. Test Data FLOWING {Automatic) Q, Mcfid BCPD BWPD FTP, Psia WHT, °F BHP, Psia COMMENT SHUT-IN 1 ~ 0 ~ 618 0 0~ 0 j ----- 0 1,488 552 50 50 ~ 1,624 ---- 598 SIBHP -- ____ 2 ~ 652 0 0 ' 479 50 ~ 27 5 ___._._.._ __ --} ~ -- ,_ 3 ~ 667 0 0 386 ! 40 416 4 680 ~ 0 0 ~ _ _ 318 ~ _ 35 __ 346 ___ ___ These results were prepared using Reservoir Solutions Software . This is not Ryder Scott work product. L~ ~~ THREE MILE CREEK UNIT N0.1 PRESSURE BUILDUP AFTER 4-POINT LOWER ZONE-BELOW 3500' (Bombs at 3493' MD- 3342 TVD) START TIME 1715 6/17!2005 (FSIP BUILD UP) t= 58.3 MID PERF= 3600' MD/ 3445 TVD TIME DELTA T PRESSOR BHT t+Delta t/ COMMENTS ON REC HRS PSIA DEG F delta t Initial SIP survey 16:30 1454.300 64.1 at surface, 6.14/04 17:41 1595.800 78.9 3400' 0.042 psi/ft initial 17:45 1601.000 80.2 3500' 0.052 psi/ft wtr level 17:48 1644.500 81.8 3600' 0.435 psUft 18:30 2120.400 92.9 gradient survey to 4590' 8:30 1634.500 81.3 overnight at 3560' 8:35 1623.300 80.9 at 3500' 0.187 8:35 1575.800 70.6 3000' 0.095 9:42 1483.800 53.0 surface 0.031 6/15/2005 download and re-run bombs 0 12.900 74.1 at surf, start 17:34:22 6/15/05 0.10 292.930 84.3 well just SI after flow to clean up at surface 13 1619.277 80.0 at 3493' 13.5 1619.393 80.0 14 1619.430 80.0 14.5 1619.572 80.0 15 1619.657 80.0 15.1 1619.698 80.0 15.2 1619.694 80.0 15.3 1619.672 80.0 15.4 1619.758 80.0 15.5 1619.716 80.0 15.511 1619.770 80.0 15.537 1619.729 80.0 open well to clean up 1623.7 24 154.000 SI well, 17:30 6/16/05 35.5 1610.488 78.0 36.5 1611.139 78.1 37.5 1611.732 78.3 BHP 37.716 1611.806 78.3 open well for 4-point test mid pe-f 41.75 594.400 55.0 Point #1-1145 6/18/05 598.4 43.25 517.000 51.0 Point #2-1245 521.0 45 412.000 49.0 Point #3--1430 hrs 416.0 47.5 342.000 54.5 Point #4-1700 hrs 346.0 47.67 0 345.785 55.0 FFP 47.7 0.03 400.548 55.1 1944.33 1715 6/17/2005 47.75 0.08 489.800 53.5 729.75 START BUILDUP 47.8 0.13 575.800 54.6 449.46 47.85 0.18 658.400 55.1 324.89 47.9 0.23 737.600 55.4 254.48 47.95 0.28 813.400 55.7 209.21 48 0.33 885.400 56.4 177.67 48.05 0.38 954.050 57.0 154.42 48.1 0.43 1018.960 57.7 136.58 48.15 0.48 1079.955 58.3 122.46 i +~ 48.2 0.53 1136.786 59.0 111.00 48.25 0.58 1189.162 59.8 101.52 48.3 0.63 1238.235 60.4 93.54 48.35 0.68 1282.478 61.0 86.74 48.4 0.73 1322.711 61.6 80.86 48.45 0.78 1358.629 62.6 75.74 48.5 0.83 1390.589 62.7 71.24 48.55 0.88 1418.581 63.0 67.25 48.6 0.93 1442.900 63.4 63.69 48.65 0.98 1463.815 63.7 60.49 48.7 1.03 1481.661 64.1 57.60 48.75 1.08 1496.645 64.3 54.98 48.8 1.13 1509.183 64.6 52.59 48.85 1.18 1519.855 64.9 50.41 48.9 1.23 1528.207 65.2 48.40 48.95 1.28 1535.902 65.5 46.55 49 1.33 1541.039 65.8 44.83 49.1 1.43 1549.800 66.4 41.77 49.2 1.53 1555.903 66.9 39.10 49.3 1.63 1560.382 67.5 36.77 49.4 1.73 1563.654 68.0 34.70 49.5 1.83 1566.517 68.4 32.86 49.75 2.08 1571.330 69.3 29.03 50 2.33 1574.906 70.1 26.02 50.5 2.83 1584.915 70.7 21.60 51 3.33 1594.067 71.5 18.51 51.5 3.83 1598.867' 72.4 16.22 52 4.33 1602.485 73.0 14.46 53 5.33 1606.369 74.0 11.94 54 6.33 1608.817 74.6 10.21 54.25 6.58 1608.812 74.8 9.86 55 7.33 1606.784 75.2 8.95 0:35 6/18/2005 56 8.33 1608.592 75.6 8.00 57 9.33 1610.623 75.6 7.25 58 10.33 1611.558 75.8 6.64 59 11.33 1612.608 76.1 6.15 60 12.33 1613.721 76.3 5.73 61 13.33 1613.298 76.6 5.37 62 14.33 1614.415 77.0 5.07 63 15.33 1616.634 77.2 4.80 63.5 15.83 1616.911 77.2 4.68 64 16.33 1618.106 77.3 4.57 64.25 16.58 1618.090 77.3 4.52 64.35 16.68 1618.269 77.4 4.50 64.4 16.73 1618.249 77.4 4.48 0930 6/18/05 64.45 16.78 1618.362 77.4 4.47 64.493 16.823 1618.429 77.4 4.47 65.49 17.82 1490.060 51.2 Final Surface SITP p"= 1640.49 psia Pwf= 345.785 psia m= 26.88 psi/cycle Q= 680 mcf/d gravity= 0.56 Z= 0.84 Tc= 344 deg R Tr-- 1.57 Pc= 672 psis Pr= 1.48 Tres= 541.5 deg R net pay= 45 (NuTech) cg= 0.000697 -psi ct= 0.000317 -psi Cr-- 3X10**-6 P1 hr-- 1586 psia (from plot of log delta t vs. bhp) vis u1= 0.0112 u/u1= 1.15 u= 0.01288 cp Bg= 0.012947 cflscf kh= 118.7245 k= 2.64 and s= 50.81 delta Pskin= 1188.31 psia reality ck: Pwf w/o skin 1534.09 a little high, but possible p'" at 3600'= 1644.448 psia assuming no water to 3600' However, values of 1636-1646 can be extrapolated for p" at 3500' + 4psi for 103' gas gradient. (initial fluid level was a little above 3500' and 5.61 bbl--147' in casing-were recovered during test) Ed Jones 7/3/2005 TMCU 1 LWR ZN BUILDUP r~ a a a m -+-TMCU 1 LWR ZN BUILDUP s LOG DELTA T -2 -1.5 -1 -0.5 0 0.5 1 1.5 TMCU 1 LWR ZN BLDUP 1800 1600 1400 1200 a 1000 m a a m 800 600 400 200 0 0.00 --~ Series1 • • LOG T+DTIDT 0.50 1.00 1.50 2.00 2.50 3.00 3.50 • • - ~ Ryder Scott Reservoir a Solutions ~'~ _ (Public) ,_ (Protected) WELL NAME: THREE MILE CREEK UNIT NO. 1 FIELD: LOCATION: RESERVOIR: BELUGA--UPPER PERFS (2570• BOTTOMHOLE TEMP, °F: 73 SOUR GAS MOLE GAS GRAVITY: 0.562 NZ 1.20 MZO GRAVITY, yY,,: COz 0.23 COND. GRAV., °API: HzS 0.00 I TVD. FT: 2.796 1 MEAS. DEPTH, FT: 2,926 Options Cond. Correl. (Y/N): N ~ ~~ If Injection Well Corrected* Tc, °R: 343.03 ~ Corrected* Pc, Psia: 671.54 ~ Smooth Pipe Roughness Pressun3 Base, Psia: 14.650 TUBING ID, IN.: 2.992 wchert-Aziz correction for coMaminaMs, ff any __RESULTS AOF, Mcf/d: 5,940 C: 0.049653 n: 0.824935 io X .y ~ ~,~ a° a goo a~ ~,o~ +o,aoo Fbw Rate, Nicfid POINT NO. Test Data FLOWING (Automatic) Q, Mcf/d BCPD BWPD FTP, Psia WHT, °F BHP, Psia COMMENT SHUT-IN 0 0 0 1,125 50 1,196 SIBHP 1 886 0 0 1,067 _ 50 1,134 2 1,372 0 0 1,025 45 1,092 3 1,917 0 0 970 40 1,038 4 2,341 0 0 918 35 979 These results were prepared using Reservoir Solutions Software. This is not Ryder Scott work product. • THREE MILE CREEK UNIT N0.1 PRESSURE BUILDUP AFTER 4-POINT UPPER ZONE-ABOVE 3500' (Bombs at 2793' MD / START TIME 16:55:45 6/18/2005 t= (hrs) 12 Mid Perf = 2926' MD TIME DELTA T PRESSURE BHT t+Delta t/ COMMENTS ON REC HRS PSIA DEG F Delta t 0.00 0.20 0.60 0.73 0.90 1.11 1.20 1.30 1.40 1.50 1.55 1.60 2.30 3.80 5.05 6.55 10.85 10.90 10.95 11.00 11.10 11.20 11.30 11.40 11.50 11.60 11.80 12.00 12.25 12.50 12.75 13.00 13.50 14.00 15.00 16.00 17.00 18.00 19.00 20.00 21.00 22.00 23.00 24.00 0.05 0.10 0.15 0.25 0.35 0.45 0.55 0.65 0.75 0.95 1.15 1.40 1.65 1.90 2.15 2.65 3.15 4.15 5.15 6.15 7.15 8.15 9.15 10.15 11.15 12.15 13.15 12.80 1118.50 1185.10 1198.10 1274.60 1193.09 1192.88 1192.79 1192.88 1192.87 1192.86 1130.55 1088.40 1032.14 975.93 1001.86 1089.89 1137.24 1152.70 1162.19 1165.63 1167.80 1169.35 1170.61 1171.18 1173.39 1174.68 1176.07 1176.14 1178.09 1178.93 1180.26 1181.392 1183.08 1184.25 1185.19 1185.96 1186.56 1187.03 1187.42 1187.81 1188.08 1188.39 64.2 +/-17:02 6/18/2005 54.4 SIH 17:08 68.9 grad stop at 2500' 74.2 grad stop at 3000' 77.8 grad stop at 3450' 73.6 set bhp bombs at 2793' 73.5 73.5 73.4 73.3 73.3 Open Well for 4 72.8 Poin# #1--19:15 72.9 Point #2--20:45 72.7 Point #3-22:00 72.6 Point #6-23:30 72.1 SI well 71.2 241.00 71.7 121.00 71.8 81.00 72.1 72.3 72.5 72.6 72.8 72.8 73.0 73.1 73.2 73.2 73.2 73.2 73.2 73.3 73.2 73.2 73.2 73.2 73.2 73.2 73.2 73.2 73.2 73.2 49.00 35.29 27.67 22.82 19.46 17.00 13.63 11.43 9.57 8.27 7.32 6.58 5.53 4.81 3.89 3.33 2.95 2.68 2.47 2.31 2.18 2.08 1.99 1.91 • 2668 TVD) 2796 TVD 1196.4 @ mid pert BHP @ Mid Perf 128 -point test ft lower 1134.0 1091.9 1035.6 979.4 26.00 15.15 1188.78 73.2 1.79 28.00 17.15 1189.12 73.2 1.70 30.00 19.15 1189.46 73.2 1.63 32.00 21.15 1189.74 73.2 1.57 35.00 24.15 1190.07 73.2 1.50 40.00 29.15 1190.40 73.2 1.41 40.10 29.25 1190.44 73.2 1.41 40.20 29.35 1190.465 73.2 1.41 40.35 29.50 1190.467 73.2 1.41 40.50 29.65 1190.26 73.2 1.40 RIH to retri 0930 6/20/05 40.75 29.90 1190.61 73.2 1.40 40.80 29.95 1190.49 73.2 1.40 SOH w/ bombs 40.90 1182.88 70.1 grad stop at 2500' Grad= 0.027 41.00 1179.20 64.7 grad stop at 2000' psi/ft 41.35 1118.20 47.4 grad stop at surface 41.50 13.58 55.6 out of hole p*= 1192.96 Asia Pwt= 1001.86 at 2793' m= 17.24 psi/cycle Q= 2300 gravity= 0.562 Z= 0.86 Tc= 343 deg R Tr= 1.56 Pc= 671.5 psia Pr= 1.63 Tres= 534 deg R net pay= 90 ct= 0.000317 P1 hr= 1180 psia vis u1= 0.0112 u/u1= 1.18 u= 0.013216 Bg= 0.010918 cf/scf kh= 541.9822 k= 6.02 and s= 9.19 delta Pskin= 137.84 psia Ed Jones (7/3/05) PRODUCTIVITY INDEX factual= 12.0350741 mcfd/psi Jideal= 43.174079 mcfd/psi Flow Eff= 0.27875694 TMCU 1 UP ZN BUILDUP • a a a x m ~tTMCU 1 UP ZN BUILDU~ • -1.500 -1.000 -0.500 0.000 0.500 1.000 1.500 2.000 LOG DELTA T TMCU 1 UPPER ZN BLDUP C, ~ Series1 • r • • {~ Ryder Scott Reservoir ~ Solutions ~ ` _. (Public) (Protected) WELL NAME: THREE MILE CREEK UNIT NO.2 FIELD: THREE MILE CREEK UNIT LOCATION: WEST SIDE OF COOK INLET, ALASKA RESERVOIR: BELUGA -UPPER COMPLETION -2192-2272' BOTTOMHOLE TEMP, °F: 65 SOUR GAS MOLE % GAS GRAVITY: 0.560 NZ 1.05 HZO GRAVITY, yw: 1.020 COZ 0.00 COND. GRAV., °API: H2S 0.00 I TVD. FT: 1.985 I MEAS. DEPTH, FT: 2,232 Options Cond. Corral. (YIN): N ~ ~~ If Injection Well Corrected* Tc, °R: 343.50 Comected* Pc, Psia: 671.86 ~ Smooth Pipe Roughness Pressure Base, Psia: 15.025 TUBING ID, IN.: 2.875 * ~chert-Aziz correction for contaminants, if airy RESULTS AOF, Mcf/d: 1,950 C: 0.006907 n: 0.925528 1,000 o ~ x a a a goo goo ~,ooo ~o,aoo Flow Rate, Mcf/d POINT NO. Test Data FLOWING (Automatic) Q, Mcf/d BCPD BWPD FTP, Psia WHT, °F BHP, Psia COMMENT SHUT-IN 0 0 0 841 50 880 IBHP S 1 576 0 0 720 78 752 _ 2 784 0 0 670 74 700 3 969 0 0 615 68 643 4 1,107 0 0 566 66 592 These results were prepared using Reservoir Solutions Software. This is not Ryder Scott work product. RESULTS. AOF, Mcf/d: 757 C: 0.000319 n: 1.000000 0 x W a ~,ooo a a i _.. goo ~ goo ~,ooo Flow Rate, Mcf/d POINT NO. Test Data FLOWING (Automatic) Q, Mcf/d BCPD BWPD FTP, Psia WHT, °F BHP, Psta COMMENT SHUT-IN 0 0 0 1,405 50 1,539 SIBHP 1 714 0 0 337 ~ 80 365 2 695 0 0 381 82 412 3 643 _ 0 0 460 78 498 4 547 0 0 _ 587 76 636 ~ • Ryder Scott Reservoir ~ • Solutions r.., °° (Public) ~. (Protected) WELL NAME: THREE MILE CREEK UNIT NO. 2 FIELD: THREE MILE CREEK UNIT LOCATION: WEST SIDE OF COOK INLET, ALASKA RESERVOIR: BELUGA -LOWER COMPLETION 3507-4892' ~o,oao BOTTOMHOLE TEMP, °F: 87 SOUR GAS MOLE % GAS GRAVITY: 0.560 Nz 1.05 HZO GRAVITY, yw: 1.020 COz 0.00 COND. GRAY., °API: HzS 0.00 I TVD. FT: 3.800 I MEAS. DEPTH, FT: 4,000 Options Cond. Correl. (YIN): N ~ ~~ If In ection Well Corrected" Tc, °R: 343.50 j Corrected" Pc, Psia: 671.86 0 Smooth Pipe Roughness Pressure Base, Psia: 15.025 TUBING ID, IN.: 2.875 " Wichert-Aziz correctlon for contaminaMS, If arty i These results were prepared using Reservoir So/utlons Software . This is not Ryder Scott work product. :tt: 1'4 ..., - '--- ~~Aurora Gas, LLC www.aurorapower.com October 27, 2006 RECEIVED OCT 3 0 2006 Mr. William Van Dyke, Acting Director Departlnent of Natural Resources Division of Oil and Gas 550 W. ih Avenue, Suite 1100 Anchorage, AK 99501-3560 Alaska Oil & Gas Cons. Commission Anchorage Mr. K.eith Sanders Sr. Vice President, Land and Legal Affairs Cook Inlet Region Incorporated 2525 'c' Street, Suite 500 P.O. Box 93330 Anchorage, AK 99509-3330 RE: Three Mile Creek Unit Dear Mr. Van Dyke and Mr. Sanders: Due to unfavorable reservoir characteristics and drilling results, we can no longer justify the work comlnitment necessary to sustain this unit. Accordingly, the anticipated contraction of the Participating Area would result in the remaining acreage being less than the lease itself. Therefore, it is with deepest regrets that we must inform you that the Three Mile Creek Unit partners have decided to voluntarily dissolve this unit, Effective November 1, 2006. \\1 e understand th2.t State of þJaska oil and gas lease, þ~DL 388133, \villcontinue to be held by production, and that the remaining State and CIRI oil and gas leases, presently held by the unit, will ultimately expire, unless extended. It is our intention to continue production trom the Three Mile Creek Unit No. I and No.2 wells on a lease basis. Aurora Gas, LLC, as Unit Operator, hereby accepts the responsibilities of the cunent unit operations as the Lessee and Notification Lessee of record. We respectfully request that the Unit Plan of Development be administratively transfened to a Lease Plan of Developn1ent. In conjunction with this request, as of November I, 2006, \ve will be operating under a Lease Plan of Development, as it pertains to the existing developments and present operations, and the existing Lease Plan of Operation approvals for the wells, pads, roads and pipelines. 10333 Richmond Avenue, Suite 710 · Houston, Texas 77042 · (713) 977-5799· Fax (713) 977-1347 1400 West Benson Blvd., Suite 410· Anchorage, Alaska 99503· (907) 277-1003 · Fax (907) 277-1006 · ~- -~~ "---' Three Mile Creek Unit October 27, 2006 Page 2 Additionally, it is our understanding that the AOGCC Conservation Order No. 558, establishing rules for the Three Mile Creek Beluga Gas Pool, will remain in effect. Aurora Gas, LLC intends on continuing operations in accordance with these pool rules. Should circumstances improve in the future, we may revisit the possibility of unitization. Thank you for your time and attention to this matter. Should you have questions, please contact Mr. J. Edward (Ed) Jones at the Houston telephone number below. Sincerely, ~¿~ Bruce D. Webb Manager, Land and Regulatory Affairs Concunence by Forest Oil Corporation: C-\ /l ,Ç}~ J. / /4~ LJ:ímes D. Arlington ~ Land Manager Cc: Mr. John K. Norman Chairman Alaska Oil and Gas Conservation Commission 333 W. ih Avenue, Suite 100 Anchorage, AK 99501 Mr. Matt W. Rader Natural Resource Specialist State of Alaska Division of Oil and Gas 550 W. ih Avenue, Suite 800 Anchorage, AK 99501-3560 #13 ~ '. . ) ) ~~Aurora Gas, I.I.C .- ~ F~~,) , WW1l\l. aurorapower. com Alaska Oil and Gas Conservation Commission August 31, 2005 333 W 7th Avenue, Suite No. 100 Anchorage, Alaska 99501-3539 SEJJ 2; ¿,lIOS Attn: Mr. Steve Davies Petroleum Geologist RE: ~'~æ¡¡ska Oil & Pool Rules Application Am:.:hfJfage Three Mile Creek Unit Kenai Peninsula Borough Cook Inlet, Alaska Gentlemen: This letter seeks to provide additional data to the Alaska Oil and Gas Conservation Commission ("AOGCC") asking you to place it into the public record relative to the captioned Application. As requested by the Commissioners at the recent Hearing, these data are Aurora's statement on estimated reserves applicable to the reservoir for Three Mile Creek Unit, and the submission of a non-confidential version of Aurora's confidential Technical Report, as identified as Exhibit "c" in my letter dated June 27, 2005 to the AOGCC applicable to the Pool Rules Application for Three Mile Creek Unit. It is requested the enclosed non-confidential Technical Report supplement the public record and it may have value to the AOGCC Commissioners aiding them in rendering a Decision as to Aurora's captioned Application. Futhennore, Aurora estimates the Three Mile Creek reservoir to be 50-60 BCF gas in place with a 90% recovery factor. If you require additional infonnation regarding this Application, please contact Mr. Ed Jones, Vice President, Engineering at the number below or the undersigned. Your prompt attention to this matter is sincerely appreciated. Very Truly Yours, 1(~ Randall D. Jones, Manager, Land & Negotiations rj ones@aurorapower.com Enclosures cc: A. Clifford S. Pfoff 10333 Richmond Avenue, Suite 710 · Houston, Texas 77042 · (713) 977-5799· Fax (713) 977-1347 1400 West Benson Blvd., Suite 410· Anchorage, Alaska 99503· (907) 277-1003 · Fax (907) 277-1006 ) ) j Forest Oil Corporation 310 "K" Street Anchorage, Alaska 99501 Attn: Mr. James D. Arlington Land Manager tme aogccpool rules appsupplement ) ) APPLICATION FOR SPECIAL POOL RULES FOR THE THREE MILE CREEK B ~~GA Ii...,. ít"'i'¡¡. E,:: t[w;¡~ ~~~~\¡~)" .._ ;.¡ PARTICIPATING AREA SEP 0 2 2005 Technical Report (W 8'4 Executive Summary The Three Mile Creek Participating Area (TMC PA), within the Three Mile Creek Unit, is located on the west side of Cook Inlet, Alaska, 5 miles due west of the Beluga River Unit (Figure 1). The State of Alaska, Department of Natural Resources, Division of Oil and gas (the State, the DNR, or the Division, as appropriate) and Cook Inlet Region Inc. (CIRI) approved the formation of the Three Mile Creek Unit and the initial Plan of Exploration effective January 31, 2004. Aurora and Forest formed the TMC PA, covering 960.00 acres, approximately 87.50% of which lies within one State Lease (ADL 388233) and 12.50% of which lies within two COO leases (C-061394 and C-061502). The TMC PA is based on 40-acre aliquot parts as defined by 11 AAC 88.185 (11). The TMC PA is wholly contained within the existing Three Mile Creek Unit. The State and CIRI jointly administer the Three Mile Creek Unit Agreement (the Agreement). Figure 2 shows the outline of the TMC PA, which is based on 40 acre aliquots, within the Three Mile Creek Unit. The TMC PA is prospective for gas in sands of the Beluga Formation. Previous exploration in the Three Mile Creek area includes various vintages of 2D seismic data acquisition. Aurora and Forest acquired 44 miles of new 2D seismic data over the Three Mile Creek and Olson Creek anticlines in early 2004 then did Pre-Stack Depth Migration on the data in order to better image the western side of the anticline. Existing wells in the area include the Superior Three Mile Creek State 1 well (TMCS 1), the Phillips North Tyonek State 1 well (NTS 1), and the recently completed Aurora Three Mile Creek Unit 1 well (TMCU 1). 'I'll RLI': ~II L¡': CRLLK POOL R II LLS APPLIC/\ll()N 1 ) ) Seismic mapping by Aurora and Forest, using pre-existing 2D seismic data over the Three Mile Creek and Olson Creek anticlines, revealed that the TMCS 1 well was drilled too far downdip on the Three Mile Creek anticline and that significant potential for gas existed within the Beluga and Tyonek fonnations updip from the TMCS 1 well. The Three Mile Creek anticline is the dominant feature in the Three Mile Creek Unit area with a structural saddle separating the anticline from the Olson Creek anticline to the north, also within the Unit area, and the Aspen anticline to the south. The Three Mile Creek anticline is a relatively simple structure within the footwall of the Moquawkie anticline, which lies to the west. The State and CIRI approved Aurora and Forest's application to fonn the Three Mile Creek Unit effective January 31, 2004. The initial Plan of Exploration contained a commitment for the first year as follows: 1. By January 31, 2006, the Unit Operator must: A. drill the first exploration well 1. to the base of the Tsuga 2-4 interval or the stratigraphic equivalent of the 4,300' TVD marker, as seen in the TMCS 1 well, whichever is deeper; 2. to a bottom hole location within Tract 4, ADL 388233; 3. log the well (OR or SP, resistivity and N eutron/Density or Porosity: appropriate triple combo log); and 4. complete, suspend, or abandon the well. B. acquire not less than 27 Line Miles of new seismic data sufficient to evaluate the entire unit area, as shown on the map titled Proposed Three Mile Creek/Olsen Creek 2D program 27 Miles received by DNR on January 20, 2004. Aurora and Forest spud the first well, Three Mile Creek Unit 1 (TMCU 1) within the newly-fonned Three Mile Creek Unit in December 2004. The well was drilled to a total I Î IIU 'x: [\/11 L ¡.: C R ¡: I J( P () () \, R lll.l~: SAP P L 1(' .!\ T ION 2 ) ) depth of 8,362 feet. To date, a number of tests have been conducted with the Tyonek and Beluga formations, yielding commercially recoverable gas within the Beluga Formation. The Nabors 129 rig was released in late January 2005 and testing continued in the spring of 2005 with the A WS 1 rig. In addition, the first year seismic commitment was met with the acquisition, in early 2004, of 44 Line Miles of new seismic data over the Three Mile Creek Unit. The TMCU 1 well has confirmed the presence of gas-bearing Beluga formation sandstones updip from the TMCS 1 well. The Beluga sandstones are lenticular and discontinuous in nature with relatively low penneabilities due to a large amount of lithic material in the reservoir. The Beluga formation gas accumulation is contained within a combination structural/stratigraphic trap. At this time with only one well penetration, there is insufficient data to know what the well spacing should be except that the reservoirs are fairly tight (1-10 millidarcies permeability) and low pressure (900-1700 psi). The testing pressure transients to date have not extended very far into the reservoir. Aurora and Forest is seeking special pool rules for the Three Mile Creek Beluga gas accumulation that will allow well spacings of as low as 1,500 feet, if needed. This is predicated on the fact that the Beluga gas reservoirs encountered in the Three Mile Creek Unit 1 well have a high clay content and low permeability as well as being lenticular in nature. Historical Summary Several vintages of 2D seismic data have been acquired, processed and interpreted in the Three Mile Creek Unit area, and Aurora and Forest acquired 44 miles of proprietary 2D seismic data over the Three Mile Creek and Olson Creek anticlines in early 2004, as part of its commitments under the Three Mile Creek Unit. Three wells have been drilled in the immediate vicinity (Three Mile Creek State 1, North Tyonek State 1, and Three Mile Creek Unit 1). Iî I R ¡ <:I-: [\H L ': C R! <T K PO () L R II I, L S /\ P P LIe /\ T I () N 3 ) ) The Three Mile Creek State 1 (TMCS 1) well was drilled by Superior in 1967. It was drilled on a poorly-defined rollover in the footwall of the Moquawkie Anticline. The well was drilled to a total depth of 13,773 feet with an exploration objective of oil within the Hemlock Formation. The well encountered numerous gas shows within portions of the Beluga and Tyonek formations but no tests were carried out. The North Tyonek State 1 (NTS 1) well was drilled by Phillips in 1973 but this well was drilled presumably to test shallow Sterling and Beluga amplitudes located across the syncline from the Beluga River Field. Whilst several sands were tested with some gas flowing to surface, Phillips decided that gas was not present in commercial amounts and the well was plugged and abandoned at 6,063 feet without reaching the Tyonek Formation. The Three Mile Creek Unit 1 (TMCU 1) well was drilled by Aurora in late 2004 within the newly-formed Three Mile Creek Unit. The well was drilled to a total depth of 8,362 feet with objectives within the Upper Tyonek and Beluga formations, targeting potentially gas-bearing sandstones updip from the TMCS 1 well, approximately one mile to the south. To date, a number of tests have been conducted with the Tyonek and Beluga formations, yielding gas in the Beluga Formation (see later section). The Nabors 129 rig was released in late January 2005 and testing continued in the spring of 2005 with the AWS 1 rig. Geological Overview The northwestern reaches of the Cook Inlet forearc basin are defined by a series of tight anticlines and associated structures that deform the Tertiary section and provide traps for both oil and gas. These features are part of a transpressional regime that results from strain transfer between the Castle Mountain Fault to the north and Bruin Bay Fault to the west. The complexity of the folding and faulting has provided a backdrop for continuous exploration over the last 40 years. ['[IIUT' f\iJl L ¡.: C R IJ J( POO! . I< 1I I.I':S:\ PPLIC.:\TION 4 ) ) The Three Mile Creek anticline is the dominant feature in the Three Mile Creek Unit area with a structural saddle separating the anticline from the Olson Creek anticline to the north, also within the Unit area, and the Aspen anticline to the south. The Three Mile Creek anticline is a combination structural and stratigraphic trap with gas trapped in Beluga sandstones within the footwall of the adjoining Moquawkie anticline, some 4 miles to the south-west. The Olson Creek anticline, situated just 2-3 miles further NNE, has a similar trap style to Three Mile Creek. The Three Mile Creek anticline contains Tyonek and Beluga formation sandstones, interbedded with siltstones, shales and coals, within the mapped anticlinal closure but the Tyonek sandstones were found to be water- bearing, whereas the Beluga sandstones have tested non-associated gas in commercial quantities. The reservoir is defined by a down-faulted three-way dip closure, bounded by a easterly-verging high angle reverse fault on the western side with fault closure playing a more dominant role in trap formation in the shallowest reservoirs. The anticlinal axis trends NNE-SSW. A type log for the Three Mile Creek area is presented in Figure 3 (Confidential). Figure 4 (Confidential) is a structural cross section across the Three Mile Creek anticline, based on interpretation of 2D seismic data. The Three Mile Creek anticline is bounded on the west by the Moquawkie anticline, separated by one or more high angle reverse faults with easterly vergence. The biggest risk with the trap pre-drill was whether or not westerly dip was present on the Three Mile Creek anticline, since conventional 2D seismic data could not adequately image the western flank (see later section). Formation Micro-Imager (FMI) log data acquired in TMCU 1 has confirmed the western dip towards the Moquawkie anticline with the anticlinal axis crossed at a depth of approximately 2,500 feet. Figure 5 (Confidential) is a log correlation of the Upper Beluga formation between the Beluga River Unit wells, BRU 224-13, BRU 212-35 and BRU 241-34, the NTS 1 well, the new TMCU 1 well and the TMCS 1 well. This section has been datumed on the Tsuga 2-3 (Beluga "F") coal marker and is designed to show the lenticular and discontinuous nature of the fluviatile Beluga formation sandstones between wells. It also T II R L .: Ì\ll L L C R L IJ, POOl. R t IJ J': S /\ P P Lie /\ Î 'I () N 5 ) ) summarizes petrophysical parameters where available from sidewall cores and conventional cores. Dipmeter data acquired from FMI logging in the new TMCU 1 well confirm the presence of westerly dip in the Three Mile Creek anticline with the crest of the anticline penetrated at approximately 2,500 feet, with westerly-dipping strata above that depth and easterly- dipping strata below. Stereonet great circle analysis, using all dips ftom the well, indicate that the anticlinal axis strikes N3°E and that the axial plane dips 84° to the east. This means that the crest of the anticline moves to the east with increasing depth. The FMI data also indicates that the Three Mile Creek anticline plunges approximately 3° to the south. Reservoir Quality Prior to drilling TMCU 1 well, Aurora and Forest undertook log analysis of the TMCS 1 well showed the 5-10 feet thick Beluga sands having porosities in the 18-23% range with permeabilities of 2.5-320 md (from analysis of percussion sidewall cores). The Upper Tyonek sands showed porosities of 15-19% with permeabilities of 4.3-60 md (also from percussion sidewall core analysis). The main targets for the TMCU 1 well were these same Beluga and Tyonek sandstones in a structurally more favorable position updip from the TMCS 1 well. Log analysis estimates approximately 200 feet of potentially gas-bearing Beluga sandstones. These sands vary between 5-30 feet in thickness. Most of the Beluga sandstones share common characteristics within the TMCU 1 wellbore, as seen in sidewall cores, notably a high proportion of lithic fragments and chert, very fine-grain to medium-grain size, very little cementation, and micro-porosity in the chert fragments. It is believed that the presence of clay rims around the quartz grains has helped prevent secondary quartz overgrowths. The biggest effect reducing porosity in Three Mile Creek sandstones is filling up of pore throats with ductile lithic grains, like a pseudo-matrix, due to compaction. Porosities range from 15-20% and permeabilities are generally low, rarely exceeding 30 millidarcies but typically 1-10 millidarcies. T! IRIT: ìv!II.F CRFIJ< POOL rn ILLS .\PPLICATION 6 ) ) FMI data, acquired in TMCU 1, whilst critical for analysis of structural dips, is also an invaluable tool for analyzing the stratigraphic aspects of the reservoir. Figure 7 (Confidential) is a sample of the processed FMI data from the 3560 sand interval. A percussion sidewall core was taken at 3,560 feet, within this interval and the results are shown in Figure 8 (Confidential). This particular sample is fairly representative of the Beluga formation sandstones within the TMCU 1 well as a whole. The sandstones are notably lithic, rather dirty and fine grained. Compaction is the greater diagenetic effect rather than cementation, with ductile, lithic and organic debris squeezed into available pore space around the quartz grains, reducing porosity and permeability with depth. It is note sure, at this time, how these low permeability reservoirs will respond to fracturing, as a completion technique. FMI analysis of limited cross-bedding in the Beluga sandstones in TMCU 1 well suggests that the fluviatile channels have an east-west orientation with provenance from the east, consistent with data from the nearby Beluga River Unit. Table 1 (Confidential) summarizes Aurora's log analysis from the Tsuga 2-5 interval that was tested in DST #4. Log analysis, supplemented by sidewall coring, has confirmed the presence of further potential gas pay in shallower Beluga sandstones between 1,850- 2,191 feet. Sandstones shallower than 2,450 feet cannot be tested in the TMCU 1 well because of the casing design but will be tested in subsequent development wells. Geophysical Overview In order to increase confidence in the Three Mile Creek and Olson Creek anticlines prior to making an election to commence drilling operations, Aurora and Forest acquired 44 miles of new 2D seismic data (TMC04 and OC04 lines), all of which were subsequently processed through Pre-Stack Depth Migration (PSDM) by Kelman Technologies. This PSDM work increased confidence in the westerly dip on the Three Mile Creek anticline sufficiently to encourage drilling of the prospect. Figure 9 (Confidential) shows the location of the new 2D seismic data relative to the Three Mile Creek Unit. TI IRI'T f\il!I.L CRLLK POOL RllJ':S ,\PPIIC/\îïON 7 ) ) The TMCS 1 and TMCU 1 wells were tied to the seismic data using check-shot velocity data from the TMCS 1 well. A number of formation tops were identified within the Beluga and Tyonek formations (Table 2 - Confidential). Seismic mapping by Aurora and Forest using pre-existing 2D seismic data over the Three Mile Creek and Olson Creek anticlines revealed that the TMCS 1 well was drilled too far downdip on the Three Mile Creek anticline and that significant potential for gas existed within the Beluga and Upper Tyonek formations updip from the TMCS 1 well. The Three Mile Creek anticline is displayed in Figures 10 and 11 (Confidential). Line TMC04-06 is a north-south strike line across the length of the anticline. Figure 12 (Confidential) shows a more detailed look at the location of the TMCU 1 well on line TMC04-06. The data suggest that the gas accumulation extends almost down to the TMCS 1 well as a downdip limit and that the Tsuga 2-5 sand interval could become cleaner and thicker northwards. This hypothesis would be tested by the forthcoming TMCU 2 well. Depth mapping shows the Three Mile Creek anticline trending NNE-SSW, to the east of the Moquawkie anticline, separated by the Tyonek Reserve Fault Zone. Figures 13 through 17 (Confidential) are a series of depth structure maps of various Beluga formation markers. There are no apparent cross faults affecting the Three Mile Creek anticline. The TMCS 1 well defines the highest known water (HKW) for the Three Mile Creek Beluga gas accumulation. The TMCU 1 well defines the lowest known gas (LKG) for the accumulation. Although the mapped maximum extent of the Beluga gas accumulation has been mapped as covering an area of 1,200 acres, the outline of the TMC P A has been established by the extent of the Tsuga 2-5 4,000' depth contour (Figure 18 - Confidential). There will be a re-determination of the limits of the TMC PA once more data is collected from subsequent development drilling at Three Mile Creek. T II R ¡.: I ~ ¡\II L I·: (' R ¡.: I }.~ P () () L R li L I .: S :'\ P P Lie .\ T I () N 8 ") ) Test Results and Reserve Estimation Aurora and Forest tested several intervals within the TMCU 1 well in early 2005. The first phase of testing was undertaken with the Nabors 129 rig in mid-January 2005. The Upper Tyonek Carya 2-4.2 sand, between 7,750-80', and Lower Beluga Tsuga 2..7 sand intervals between 5,606-5,720', tested only gas-cut brine and were abandoned. However, several Lower Beluga (Tsuga 2-5 and Tsuga 2-6) sands between 3,530-4,606' were also tested at that time, yielding an absolute open flow (AOF) potential of 1.806 MMCFPD. Further testing was conducted in mid-June 2005 using the A WS#1 rig. The Tsuga 2-5 and Tsuga 2-6 sands were again tested but yielded a reduced AOF of 712 MCFPD, due to a high skin effect related to prolonged exposure to completion fluids. The previously untested Upper Beluga Tsuga 2-4 and Tsuga 2-5 sands between 2,570..3,317' were tested yielding an AOF of 5.94 MMCFPD, thereby confirming the commerciality of the TMCU 1 well. Further gas pay, recognized from log analysis within the Tsuga 2-3 interval was not tested in the TMCU 1 well. Although it is premature to confidently predict reserves for the Three Mile Creek Prospect after having drilled only one well and without some production history, which would afford the benefits of historical pressure data, Aurora currently estimates the reserves at Three Mile Creek to be approximately 60 BCFG in-place with an assessed recovery factor of 90%. However, 23% of these reserves are behind surface casing and not available in the TMCU 1 well, but will be targeted in subsequent development wells. The Three Mile Creek Beluga gas pool is estimated to be restricted to the interval between the Tsuga 2-3 coal marker at 1,700' in TMCU 1 and the Tsuga 2-6 coal marker at 5,531' in TMCU 1. Development Plans Aurora and Forest's proposed development work program for 2005 and beyond is based on a proposed 60-acre well spacing, given the low permeability nature of the Beluga reservoirs at Three Mile Creek (Figure 19 - Confidential), and includes the following: . Three Mile Creek Unit 2 (TMCU 2): TIII,zI'T ¡VIlLF CRI':\J( POOL Rt ILr:S :\PPLICA'rION 9 ) ) The first appraisal well at Three Mile Creek will be located to the north of the existing wellbore and be drilled from a new well pad, the TMC North Pad. The objective of the TMCU 2 well will be to evaluate all the Beluga sands through the Tsuga 2-6 interval down to a depth of approximately 4,500 feet, with special emphasis of shallower Beluga sands not tested in the TMCU 1 well. . Three Mile Creek Unit 3 (TMCU 3): The second appraisal well at Three Mile Creek will be located to the south of the existing wellbore and be drilled from a new well pad, the TMC South Pad. The objective of the TMCU 3 well will be to evaluate all the Beluga sands through the Tsuga 2-6 interval down to a depth of approximately 4,500 feet. Figure 19 (Confidential) shows a summary of the near-term Three Mile Creek development plans with drilling pads, well locations and the pipeline indicated. Other appraisal/development wells such as TMCU 4 and TMCU 5 will likely follow in early 2006 but will be contingent upon the results of the first two appraisal wells. The proposed 6()-acre well spacing is consistent with the expectation that the Beluga fluviatile channel sands will likely cause separate pressure cells, compartmentalizing the gas reserves, requiring several development wells. The dense spacing also takes into account the relatively low permeability of the reservoir sands and the low pressure due to the shallow depth of the reservoirs. The 60-acre spacing is consistent with other Cook Inlet Beluga formation developments at Beluga River Unit (BRU) and Kenai Unit (KU). The well spacing at BRU varies between 40-80 acres. Most of the wells in BRU are completed in both the Sterling and Beluga formations. The Beluga Formation, having higher clay content than the Sterling, has inferior reservoir characteristics with a recovery factor estimated to be 80% versus 90% for the Sterling, with recoveries of 800 MCF/AF for the former versus 945 MCF/AF for the latter. Whilst approximately half of the BRU reserves are expected to come from the Beluga Formation, this is due to the fact that the gross gas column is larger with multiple thin sands versus the thicker, cleaner sands of the Sterling Formation, which need fewer wells to drain the reservoir. The Kenai Unit has 1'1 nu,:!,' 1\nLI~~ CRIJJ( POOL RULr::S ¡\PPl.IC,/\TION 10 ) ) production from the Sterling, Beluga and Tyonek formations. Taking account of just the Beluga producing wells within the Beluga PA at KU, then a well spacing of 48...56 acres/well applies, comparable with the proposed drainage at Three Mile Creek. Aurora and Forest are seeking a minimum of 1,500' between wells, which is nominally about a +/-60 acre spacing. In reality, Aurora will likely have 6-10 wells for the 1,200 acre extent of the gas accumulation, or effectively 120-200 acre drainages. The drainage pattern for each well is more likely to be represented by a rectangular... or oval..shaped drainage pattern rather than a circle, since the fluviatile, channel sands have a preferred orientation. As shown in Figure 20 (Confidential), the overlay of successively shallower Beluga formation gas pools will likely affect how individual Tsuga intervals within the Beluga formation are completed. This figure summarizes the outlines of the maximum extents of gas in each of the respective intervals. Commercial production requires construction of a 6-inch gas pipeline from the TMCU 1 well pad to the Aurora-operated Lone Creek gas pipeline, some 5 miles to the south. Installation will be relatively easy since the pipeline will follow the line of the existing road. Production facilities, including compression and dehydration, are required at the TMCU 1 site. A preliminary determination of wetlands within the Three Mile Creek area shows that the development pads and well locations will not affect those wetlands (Figure 21 - Confidential). Surface conditions also dictate how the field will be developed, with a preference for fewer drilling pads with directionally drilled development wells. Summary Aurora and Forest have formed the Three Mile Creek Participating Area, covering 960.00 acres, approximately 87.50% of which lies within one State Lease (ADL 388233) and 12.50% of which lies within two CIRI leases (C-061394 and C-061502). The TMC PA is based on 40-acre aliquot parts as defined by 11 AAC 88.185 (11). The TMC PAis wholly contained within the existing Three Mile Creek Unit. T II R "I: [\/¡¡ L ¡.. C R ! .:¡ .:!( PO () ¡ R III ,I ': S i\ P P Lie ,\ T I () N 11 ) ) The Three Mile Creek Unit 1 well has defined a new accumulation of gas within the Beluga Fonnation, just 5 miles from existing infrastructure and Aurora Gas, with its partner Forest Oil, expect to start commercial production of gas from the Three Mile Creek Unit in mid-2005. Three Mile Creek field reserves are estimated to be approximately 60 BCFG in-place with a recovery factor of 90%, although it will take many wells to develop this gas resource. Aurora and Forest is seeking special pool rules for the Three Mile Creek Beluga gas accumulation that will allow well spacings of as low as 1,500 feet, if needed. This is predicated on the fact that the Beluga gas reservoirs encountered in the Three Mile Creek Unit 1 well have a high clay content and low permeability as well as being lenticular in nature. lHRI'T ILL CRIJ':k POOl. RllITS ,\PPI.IC.\TION 12 -HREE MILE '::REEK H1 I 'I" Lewis River ~ @- ~ ~ . ~ 'sr . ~ . @ @ L " , ~T 1 UHREE MILE ':REEK UN :N I FIGURE 2 MAP Of THE THREE MILE CREEK UNIT AND THE THREE MILE CREEK PARTICIPATING AREA .II. j 1 .. ~~ Lewis River ~ 'I" j§} . Lone \. @- . . \) ~ . íê; íê; . . Sea 'er Cree, , ~ 4- @ ~ · . ) ) AFFIDAVIT OF FACTS SI:P q IL" 2' (10h: - J .J Regarding Spacing Exception Application, Koloa No.4 Well, Kenai Peninsula Borough, Cook Inlet, Alaska. The purpose of this AFFIDAVIT OF FACTS dated effective August 28, 2005 is to confinn to the Alaska Oil and Gas Conservation Commission, 333 W 7th Avenue, Suite No. 100, Anchorage, Alaska 99501-3533, Attn: Mr. Steve Davies, Petroleum Geologist, certain facts and stipulations regarding the ownership of the minerals, surface ownership and other pertinent facts regarding certain lands, leases, and leasehold of lands situated within the captioned borough and subject to a Spacing Exception Application recently submitted by Aurora Gas, LLC, as Operator of the proposed well cited in the Application, to the Alaska Oil and Gas Conservation Commission, hereinafter referred to as the "AOGCC", pursuant to 20 AAC 25.055. WHEREAS, my name is Randall D. Jones, CPL and I am employed as Manager, LAND & Negotiations at Aurora Gas, LLC, hereinafter referred to as "AURORA". I have over twenty-five years of experience in Land Management and my present responsibilities encompass all Land Management duties at AURORA allowing me to be knowledgeable about the facts contained within this AFFIDAVIT. NOW, THEREFORE, let it be known AURORA's Koloa No.2 Well is currently producing gas from the Upper Tyonek Fonnation, Carya 2-4-2 interval, at a surface location situated in the NW4NE4 of Section 26, Township 11 North, Range 12 West, SM. The proposed Koloa No.4 Well is also planned to test gas at three (3) intervals being as follows: FORMATION KALOA 4 KALOA 4 KALOA 2 KALOA 2 TOP M D(FT) TVDSS(FT) MD(FT) TVDSS(FT) COMMENTS CARY A 2-4.1 PRODUCING SAND 3556.00 -2741.00 3155.00 -2941.00 INTERVAL CARY A 2-4.2 PRODUCING SAND 3660.00 -2834.00 3248.00 -3034.00 INTERVAL CARY A 2-5.1 PRODUCING SAND 3831.00 -2986.00 3400.00 -3186.00 INTERVAL , but unfortunately said well is also planned to have a SL situated in the identical NW4NE4 of Section 26 and a BHL within the NW/4NW4 of Section 25, both further identified below, but could have a completed zone within Section 26. Both wells would be lease wells under AURORA'S C-61394 Lease and not situated within the confines of any unit. Consequently, the proposed Koloa No.2 Well will require a spacing exception location pursuant to 20 AAC 25.540. ) ) ) WHEREAS, reference is herein made to that certain Oil & Gas Lease dated effective February 1, 1995, as amended, covering certain lands; including, but not limited to, all of Sections 25 & 26, Township 11 North, Range 12 West, SM, hereinafter referred to as the "LEASE", from Cook Inlet Region, Inc., as Lessor, and ARCO Alaska, Inc., as Lessee. AURORA is the only owner (leaseholder) of the LEASE, CIRI is the only owner (mineral rights owner), of the LEASE and the surface of the LEASE is all owned by the Tyonek Native Corp. WHEREAS, it should be noted there are no issues with any injury to the correlative rights of any landowners, owners nor operators offsetting the LEASE and within 3,000' of the proposed BHL location for the proposed Koloa No. 4 Well, pursuant to the requirements of20 AAC 25.540. As can be seen on Exhibit "A" attached hereto the offsetting landowner of the tract contiguous to and north of the drillsite lease, C-61393, for the proposed well is the Cook Inlet Region, Inc. and the minerals under said tract are leased to AURORA being our C-61390 Lease. The surface owner is the Tyonek Native Corporation. The offsetting landowner of the tract contiguous to and east of the drillsite lease is also the Cook Inlet Region Inc. and the minerals of said tract are unleased. The surface owner is the Tyonek Native Corporation. The offsetting landowner of the tract contiguous to and west of the drill site lease is the Mental Health Trust and these MHT minerals are leased to Pelican Hill Corporation under MHT 9200178. The surface owner is the Kenai Peninsula Borough. The offsetting landowner of the tract contiguous to and south of the drillsite lease is the State of Alaska, Department of Natural Resources and these minerals are leased to Unocal under ADL-17586. The surface owner is not applicable due to these minerals being situated offshore. It should be noted, however, all of the above offsetting tracts contiguous to the drillsite lease are in excess of 3,000' from the proposed BHL. FUTHERMORE, by certified copy return receipt requested of my letter dated August 30, 2005 to the AOGCC written notice to all owners, landowners, and operators of all properties within 3,000 feet of the proposed Koloa No.4 Well and/or all owners, landowners, and operators of contiguous tracts thereto requiring the spacing exception was effected on August 31, 2005. Proof of such mailing reflecting proper mailing to these parties with a list of addresses to which the notice was sent is reflected on Exhibit "B" attached hereto. Please be advised the reasons for the proposed Koloa No.4 Well's current planned location are: a) to utilitize a portion of an existing previously disturbed area for the SL drilling pad thereby minimizing environmental disturbance and existing roads (it runs right to the pad) without disturbing new, virgin areas which avoids the many wetlands in the area, and b) the drilling pad is located in a preferred optimal placement based on current geological interpretation such that it is in a near favorable position geologically (structurally high and near the center of the structure, as seen on seismic lines and subsurface mapping) for a slightly deviated hole, and c) the need to utilize the drilling rig under contract for the proposed well to drill and test two (2) other wells at our Three Mile Creek Unit commencing after completion of testing of the proposed well, but ) ,) no later than October 15 so as to be finished before mid-November since the rig is not winterized. . CONCLUDING, I now say these statements are true and correct to the best of my knowledge and analysis of AURORA'S land files and records, and through review of the land records of the websites of the Kenai Peninsula Borough and the State of Alaska, Department of Natural Resources. SIGNED thi~ate of AUGUST, 2005. By:~rdf Ii ~~(",ÞL- Randall D. Jo6"CPL TITLE: Manager, Land & Negotiations EMAIL: rj ones@aurorapower.conl IN THE UNITED STATES OF AMERICA) ) ss. STATE OF TEXAS ) This certifies that on the 4-; day of September, 2005, before me a notary public in and for the State of Texas, duly commissioned and sworn, personally appeared Randall D. Jones, CPL , to me known and known to me to be the person described in, and who executed the foregoing assignment, who acknowledged to me that he executed the same freely and voluntarily for the uses and purposes therein mentioned. Witness my hand and official seal the day and year in this certificate first above written. t'VA'_~'~""VA'"""_"""'~ Ie ALISSA S. VADIOlSKAlA, I .....UATEOFTEXAS I ~ ~~ COIIISSION EXPIRES: I ~ JANUARY 19, 2009~ .........,..,~....,...................""",,_u "" ~;;A ;l//$.t-a-- 5" }frdkJ.b4- Notary Public My Commission Expires:,,_k I~ ~9 kaloa aogcc affidavit of factsspacinexception applicationlrules COOK INLET REGION, INC. Feb. 1, 1995 dlB Moquawkie Lease Map - - - MAIN ROADS SECONDARY ROADS t::::1 AIRSTRIPS --..- ELECTRIC TRANSMISSION LINE .. ..-". .....~ ... ~ CIRJ SURFACE AND SUBSURFACE ~ CIRI SURFACE ESTATE/SAND & GRAVEL c:=J CIAI SUBSURFACE ESTATE ONLY 1",,"1 TYONEK SURFACE ESTATE/CIRI SUBSURFACE ~';N.··¡ TYONEK SELECTIONS - Conditional lease areas under review IlIIIIIIIDJ CIAI COAL, OIL & GAS _ PRIVATE LAND CID NATIVE ALLOTMENTS ~ BOROUGH SELECTED [MJ BOROUGH APPROVED , ~,. . . , .... I>· .~, ...., ," :. ',' . ,,~::" '\' ~·I!:;~,~I. .'. .:." v' LOÇ¡IIIOf\ .. 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(:'>' .... ,'. .....~ f ~ !.~" .. ~\~, ~.1 , ~~ "'1~t~ '~ ;.,:~ L.ocatlon '....}. ,~.. ".. ........ ~'....... . ................' - - - MAIN ROADS .... - - - SECONDARY ROADS t::::1 AIRSTRIPS --..- ELECTRIC TRANSMISSION LINE Moquawkie Lease Map COOK INLET REGION, ING. Feb. 1, 1995 dlB ) ) EXHIBIT " B " Alaska Oil and Gas Conservation Commission 333 W 7th Avenue, Suite No. 100 Anchorage, Alaska 99501-3539 August 30, 2005 Attn: Mr. Steve Davies Petroleum Geologist Gentlemen: RE: Application for Spacing Exception Pennit to Drill Kaloa No.4 Well C-61393 Moquawkie Area Reference is made to the recently submitted Application for Pennit to Drill (APD) in behalf of Aurora Gas, LLC (AURORA), as Operator of and applicable to the captioned proposed development well. This letter respectfully requests the APD be approved with certain limitations placed upon AURORA, as discussed below. The Kaloa No.2 Well, the only well currently producing upon the captioned lease, is producing gas from the Upper Tyonek Fonnation, Carya 2-4-2 interval, at a surface location situated in the NW4NE4 of Section 26, Township 11 North, Range 12 West, SM. The proposed well is also planned to test gas at three (3) intervals shown in yellow on the attached Exhibit "A", but unfortunately is also planned to have a SL situated in the identical NW4NE4 of Section 26 and a BHL within the NW/4NW4 of Section 25, both further identified below, but could have a completed zone within Section 26. Both wells would be lease wells and not situated within the confines of any unit. Consequently, the proposed well will require a spacing exception location pursuant to 20 AAC 25.540. Consequently, this letter respectfully requests the AOGCC give favorable consideration to approving AURORA's APD, but AURORA recognizes, if approved, the AOGCC would prohibit AURORA's ability to produce said well from the producing zone in the Kaloa No.2 Well, the Carya 2-4.2 sand seen between 3,158' to 3,552' MD, until the completion of the spacing exception process for understandable reasons. However, in anticipation of a presumable conditionally approved APD, please be advised AURORA may elect to accept all business risks associated with the drilling, perforating and testing of this well prior to the spacing exception process; including, but not limited to, the thirty (30) day public notice period being fully completed. Notwithstanding that such action, if taken, would not be recommended by the AOGCC, please understand AURORA's rational is (i) to take advantage of the present ideal drilling conditions during this summer season, (ii) the economic considerations of keeping our drilling personnel intact rrom cessation of drilling operations at our Aspen No.1 Well to the commencement of drilling operations of the proposed well and not subjecting them to a potential six (6) week suspension between wells, (iii) our assessment of the minimal risk of exposure to possible protest rrom third parties since the BHL of the proposed well is further north and east than the existing BHL of the Kaloa No.2 Well, and (iv) the need to utilize the drilling rig under contract for the proposed well to drill and ) ) 2 test two (2) other wells at our Three Mile Creek Unit commencing after completion of testing of the proposed well, but no later than October 15 so as to be finished before mid- November since the rig is not winterized. 9/1/2005 This spacing exception proposal, if approved by the AOGCC, would allow AURORA to commence drilling operations and test the intervals of interest, as identified on Exhibit "A", but not produce hydrocarbons from this Carya 2-4.2 zone in the well until the spacing exception process in concluded, notwithstanding any assumption of business risks decision made by AURORA after the APD is approved, but before the spacing exception decision is rendered. AURORA's operational, drilling and testing program is briefly discussed below for your benefit. AURORA plans to drill the proposed Kaloa No.4 Well to sufficient depth to test Upper Tyonek ("Carya") sands that are productive in the Kaloa No.2 Well. All sands are expected to be structurally higher in the No.4 than in the No.2 Well. The Kaloa No.2 Well is completed in three sand lobes of the Carya 2-4.2, which has proved to be productive, producing more than 1 BCF to date, and still capable producing at a rate of about 5 MMcfpd. The total net thickness of these sands is about 150' in the No.2 Well. The plan is to drill the proposed well to 4,750' /4,000'MD/TVD and run a full suite of open-hole logs, probably including: array induction, fonnation density, compensated neutron, di-pole sonic, fonnation micro imager, side-wall cores and fonnation pressure tests (Schlumberger's MDT tool). Following the setting and cementing of 5-1/2" production casing and analysis of these logs, the well will be perforated-probably all zones that appear to be gas productive without water will be perforated in one set up in an overbalanced well bore condition. The zones will be isolated with a packer (and bridge plugs, as needed) and briefly tested individually (or in groups of2-3 adjacent zones with similar log characteristics) from the bottom up, to get gas production rates and to detennine if water will be produced. Upon detennination of productivity of each zone, the completion string will be run. It should be noted there are no issues regarding any injury to the correlative rights of any offsetting owners. Attached hereto as Exhibit 'B' is a plat of the Kaloa Lease. As you can see the offsetting landowner of the tract contiguous to and north of the drillsite lease, C-61393, for the proposed well is the Cook Inlet Region, Inc. and the minerals under said tract are leased to AURORA being our C-61390 Lease. The surface owner is the Tyonek Native Corporation. The offsetting landowner of the tract contiguous to and east of the drillsite lease is also the Cook Inlet Region Inc. and the minerals of said tract are unleased. The surface owner is the Tyonek Native Corporation. The offsetting landowner of the tract contiguous to and west of the drillsite lease is the Mental Health Trust and these MHT minerals are leased to Pelican Hill Corporation under MHT 9200178. The surface owner is the Kenai Peninsula Borough. The offsetting landowner of the tract contiguous to and south of the drillsite lease is the State of Alaska, Department of Natural Resources and these minerals are leased to Unocal under ADL-17586. The surface owner is not applicable due to these minerals being situated offshore. It should be noted, however, all of ... ) " 3 the above offsetting tracts contiguous to the drillsite lease are in excess of 3,000' from the proposed BHL. Exhibit "C" reveals the proposed SL being 1,121' FNL and 1,740' FEL of Section 26 & a BHL of 89' FNL and 165' FWL of Section 25 for the proposed well for which this spacing exception is sought, and all other completed or drilling wells on the drill site lease C-61393, which comprises 3,435.00 gross acres, and adjoining properties are shown. Lastly, upon my receipt of the return receipts for the certified copies of this letter being sent to the parties below, I will furnish an affidavit confinning their receipt to you and also verify in same that all the facts herein are true and correct and that the plats furnished herewith accurately portrays the pertinent and required data for this spacing exception request. Please incorporate this spacing exception request with the APD submitted by Fairweather and give favorable consideration to AURORA's request. If you require additional infonnation regarding this spacing exception request, please contact Mr. Ed Jones, Vice President, Engineering or the undersigned at the number below. Your prompt attention to this matter is sincerely appreciated. Very Truly Yours, Randall D. Jones, CPL Manager, Land & Negotiations rj ones@aurorapower.com Enclosures cc: A. Clifford S. Pfoff E. Jones Duane Vaagen C-61393 File Cook Inlet Region, Inc. 2525 "C" Street, Suite 500 Anchorage, Alaska 99509-3330 Attn: Mr. Kim Cunningham LAND Pelican Hill Corporation 1401 North EI Camino Real Suite 207 San Clemente, CA 92672 UNOCAL Alaska Kenai Peninsula Borough ) 909 West Ninth Avenue Anchorage, Alaska 99501 Attn: Mr. Kevin Tabler Land Manager Mr. Mark Myers, Director Mr. Thomas Irwin, Commissioner State of Alaska Department of Natural Resources 550 West Seventh Avenue, Suite 800 Anchorage, Alaska 99501 Alaska Mental Health Trust Authority c/o Mental Health Trust Land Office 718 L Street, Suite 202 Anchorage, Alaska 99501 Attn: Mrs. Wendy Wolfe, Director Tyonek Native Corporation 1689 "C" Street, Suite 219 Anchorage, AK 99501 Attn: Mr. Ted Kroto kaloa 4 aogccspacing exceptionrequest ) 4 43335 Kalifornsky Beach Rd, Suite 16 Soldotna, Alaska 99669 Attn: Mr. Bill Popp · II I" \ FORMATION TOP KB ELEVATION SURFACE ELEVATION CARYA 2-1 (TOP TYONEK) CARY A 2-2 COAL CARY A 2-3 COAL CARY A 2-4 COAL (JÄ~*,i,x,g~4;1:$AND CARYA 2-4.2 SAND CARYA 2-5 COAL ¢lN8MÂi~!-~,:1$Â~Q) TD EXHIBIT" A " KALOA 4 KALOA 4 MD(FT) TVDSS(FT) 0.00 213.00 16.00 197.00 2578.00 -1998.00 2763,00 -2133.00 3185,00 -2442.00 3445.00 -2642.00 3556.00 -2741.00 3660.00 -2834.00 3808.00 -2966.00 3831.00 -2986.00 4730.00 -4000.00 KALOA 2 MD(FT) 0.00 16.00 2312.00 2472.00 2806.00 3026.00 3380.00 3720.00 KALOA 2 TVDSS(FT) 213.60 197.60 -2098.00 -258.00 -2592.00 -2812.00 -3166.00 -3522.40 5 COMMENTS 1r~11~~~N~ I~~! ::IN@ ItNr'~ i~'trß .::r- CI Sent To CI ¡'.c' __ -_______ - ('I TRI K;¡.m- \lm1:1, ngbam_n_mu_______m____m________. 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Norman, Chairman Daniel T. Seamount Cathy Foerster 3 4 In the Matter of THE ) APPLICATION OF AURORA GAS, LLC ) 5 TO ESTABLISH FIELD AND POOL RULES ) WITHIN THREE MILE CREEK FIELD UNIT) 6 ) 7 ALASKA OIL and GAS CONSERVATION COMMISSION Anchorage, Alaska 8 9 August 16, 2005 9:05 o'clock a.m. 10 VOLUME I PUBLIC HEARING 11 BEFORE: John K. Norman, Chair Daniel T. Seamount, Commissioner Cathy Foerster, Commissioner 12 13 APPEARANCES: ( 14 FOR AURORA GAS, LLC: MR. RANDY D. JONES 15 16 17 18 19 RECEIVED AUG 1 8 2005 Alaska Oil & Gas . ,...--. A ft....L. ConS. Comm,i~~...._ .... "'M.ifJOfage ~, 20 21 22 23 24 25 ( R & R C 0 U R T R E P 0 R T E R S 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 ,¡ ~ oi' ~, 1 TABLE OF CONTENTS 2 Opening Remarks by Chair Norman . 03 3 Testimony of Randy D. Jones . . . . . . . . 05 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( R & R C 0 U R T R E P 0 R T E R S 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( ~ ( PRO C E E DIN G S Tape 1 0015 (On record - 9:05 a.m.) CHAIR NORMAN: Good morning. This is a hearing upon the application of Aurora Gas, LLC, to establish field and pool rules applicable within the participating areas within the Three Mile Creek unit application filed on June 27th, 2005. The record reflects that notice of hearing was duly published, an affidavit of publication and a copy of the notice as published is available. If any persons wish to see it, please, contact the Commission's special assistant, Jody Colombie. The Commissioners this morning who will hear this, to my right is Commissioner Dan Seamount, the geologic commissioner. To my left, Commissioner Cathy Foerster, the engineering commissioner. And I'm John Norman, Chairman of the Alaska oil & Gas Conservation Commission. These proceedings will be conducted in accordance with the Alaska Administrative Code, specifically 28 AC 25.540. Persons giving testimony this morning will be sworn. If any person objects to being sworn we will honor your request, however the commission does give greater weight to testimony given under oath. Each witness testifying should state your person's name, and if testifying as an expert witness should testify as to R & Reo U R T R E P 0 R T E R S 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 3 4 ANCHORAGE, ALASKA 99501 810 N STREET (907)277-0572/Fax 274-8982 R & R C 0 U R T R E P 0 R T E R S MR. JONES: Aurora Gas, LLC. represent? CHAIR NORMAN: And, please, state who you're here today to MR. JONES: My name is Randy D. Jones. CHAIR NORMAN: Please state your name? MR. JONES: I do. (Oath administered) please? consider the application. Would you raise your right hand, CHAIR NORMAN: All right. Then we are ready to proceed to COMMISSIONER FOERSTER: Nor do I. CHAIR NORMAN: Commissioner Foerster? COMMISSIONER SEAMOUNT: I have nothing. commissioner Seamount? commissioners present if they having anything to add. with those opening remarks, I'll first ask the concerning whether to allow cross examination. Chair and then the Commissioners will make a decision does desire to have cross examination, you may address the of the staff and they can ask the questions. If anyone present and you may provide questions to the Commissioners or members anticipate that we will take a recess after initial testimony proceedings, if there are any persons with questions I Ordinarily we do not call for cross examination in these your qualifications as an expert. i( ~' ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( 5 ANCHORAGE, ALASKA 99501 810 N STREET (907)277-0572/Fax 274-8982 R & Reo U R T R E P 0 R T E R S MR. JONES: No. there anything else you wish to add? file together with the explanation maps, logs and so forth. Is CHAIR NORMAN: Okay. And we have your application in the regulations, in an attempt to further exploit the Beluga sands. absent field rules, be in violation of your spacing rules and We would like to drill two additional wells that would tested and found commercial quantities of gas. intervals, shallower than the Beluga intervals originally back in June and tested some additional shallower Beluga Beluga intervals at the time the rig was on location. We came We successfully tested six intervals, two Thionic, four location in section 35, northwest corridor, southwest corridor. or that is the bottom hole location, with a surface location corridor, southeast corridor of section 34, with a bottom hole drilled the Three Mile Creek #1 well situated in the northeast MR. JONES: Aurora Gas and its partner, Forest oil, TESTIMONY BY RANDY D. JONES CHAIR NORMAN: Good. Please proceed, Mr. Jones. value. be raised and lend any other information that might be of will comment on the land and unitization questions that might MR. JONES: I am manager of land and negotiations. So I representing Aurora Gas? CHAIR NORMAN: And in what capacity are you here today ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( 6 ANCHORAGE, ALASKA 99501 810 N STREET (907)277-0572/Fax 274-8982 R & R C 0 U R T R E P 0 R T E R S shoot 3-D seismic across the feature? COMMISSIONER SEAMOUNT: But do you -- is it 3-D -- did you do appear to be lenticular and discontinuous in nature. Aurora and Forest had shot, lead us to the fact that the sands conjunction with a reinterpretation of the seismic data that analysis derived from the Three Mile Creek #1 well, in understanding of our evaluation, the well data and electric log MR. JONES: Well, that's a geological question obviously that I'm not properly qualified for, but -- and my the sandbodies went? discontinuous and how did you determine, you know, which way nature of the sands and how did you determine that they were exceptions to the spacing rules because of the discontinuous COMMISSIONER SEAMOUNT: Mr. Jones, you're asking for these commissioner Seamount, any questions? brief recess to review maps in support of the application. CHAIR NORMAN: We're back on the record. We've taken a (On record - 9:12 a.m.) (Off record - 9:10 a.m.) CHAIR NORMAN: We'll go off record for a moment. (Off record comments - confidentiality of maps) the exhibits. think it might help if the Commission has questions. These are help and see if we could put a map up on the board, please? I CHAIR NORMAN: Very well. Can I ask one of the staff to { 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( 7 ANCHORAGE, ALASKA 99501 810 N STREET (907)277-0572/Fax 274-8982 R & R C 0 U R T R E P 0 R T E R S hooking up wells 2 and 3 will occur a lot quicker if construction of the gathering line. So that's now in place so we received all the regulatory approvals commenced the I guess we moved the rig off location in mid June and once presently hooked up to our Three Mile Creek gathering line. It MR. JONES: Correct. Presently the number 1 well is previous well on production, right? mean, as you're drilling the next well you intend to bring the wells on as soon as you complete them, start producing them? I COMMISSIONER SEAMOUNT: If -- do you intend to bring the criteria. rules we are in violation of both of the spacing exception 3.000 foot radius as well. So we're -- absent special field hole location. We'd like these wells to be targeted within a being the same section in which our current well has a bottom also have a surface and bottom hole location in section 34, anticipate to penetrate with wells numbers 2 and 3, which would access, along our projected east west sandbodies that we to spot our next two wells in the middle of the north south of trending in an east west type of orientation. We would like MR. JONES: Well, we do think that the sandbodies are kind sandbodies, is that correct? control is not enough to be able to determine the trends of the COMMISSIONER SEAMOUNT: 2-D? And I assume the well MR. JONES: 2-D seismic. ;¡ ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( 8 ANCHORAGE, ALASKA 99501 810 N STREET (907)277-0572/Fax 274-8982 R & R C 0 U R T R E P 0 R T E R S ( COMMISSIONER FOERSTER: So the correlative rights of the 25 24 an executed letter from CIRI approving the participating area. 23 available for insertion into the docket as evidence a copy of 22 the DNR as well as CIRI. And I have prepared -- I have 21 leases. And the P.A., participating area, has been approved by 20 and Aurora each have a contractual interest in both of those 19 percent DNR state lands and 12 1/2 percent CIRI lands. Forest the same owners, land ownership, the same royalty ownership? MR. JONES: No, in fact, the participating area allocable to the number 1 well is compromised of approximately 87 1/2 18 17 16 COMMISSIONER FOERSTER: And it's all in property that -- 15 MR. JONES: Correct. Yes. 14 underlying in Forest and Aurora property? 13 ( 12 that the reservoirs that you're targeting are completely COMMISSIONER FOERSTER: Does your interpretation indicate 11 CHAIR NORMAN: Commissioner Foerster? 10 9 no further questions. COMMISSIONER SEAMOUNT: Okay. Okay. Thank you. I have 8 MR. JONES: No. 7 6 well production? 5 take before you would see some sort of effect on the adjacent 4 you expected, how -- do you have any feel of how long it would 3 interpretation's wrong and these sands are more continuous than COMMISSIONER SEAMOUNT: Now if it turns out the geologic 2 1 successful. ( 9 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 R & R C 0 U R T R E P 0 R T E R S CHAIR NORMAN: There's five..... and 7 in the unit..... described would be directly south of and contiguous to track 6 MR. JONES: On the western boundary the lands I just CHAIR NORMAN: Uh-hum. the mineral owner and the State of Alaska is the surface owner. Three Mile Creek Exploration Unit is the Mental Health Trust is MR. JONES: Yes, the -- on the eastern boundary of the the owners? insofar as the contiguous tracks are concerned here, who are pattern in this area, could you review it for me briefly that we could all look at and talk to, but the land ownership the -- I apologize, I had intended that we have a map there MR. JONES: Now I would point out that wells 2 and 3 are planned to be drilled within the aerial extent of the existing participating area as approved by CIRI and the DNR. CHAIR NORMAN: Mr. Jones, I have the map that is an exhibit of the participating area and as filed with DNR/DOG and COMMISSIONER FOERSTER: .....ownership issues? MR. JONES: No. there any other land issues,..... COMMISSIONER FOERSTER: .....by the P.A. format? Are MR. JONES: Yes. satisfaction..... different royalty owners have been protected to their { ( ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( ( ~ , 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( MR. JONES: .....up north. CHAIR NORMAN: Okay. MR. JONES: Yeah. Just go..... CHAIR NORMAN: six..... MR. JONES: Yeah, go..... CHAIR NORMAN: six and seven? Okay. MR. JONES: Yeah, so go straight south from..... CHAIR NORMAN: Right. Uh-huh. They're right there. MR. JONES: .....there and those sections are the Mental Health Trust. CHAIR NORMAN: All right. MR. JONES: And directly west of the exploration unit, the minerals are also Mental Health Trust with the DNR as the surface owner. CHAIR NORMAN: The information that you have filed with your application, there are certain interpretative maps that are marked confidential. What we need to know, and it may take getting the staff with you, but we need to know to what extent you are asserting or would desire confidentiality. This commission has a bias toward maximum amount of public information in the record whenever we make a decision and so we'll need some guidance from you. It's not -- it is clear on the maps and they're properly marked as confidential, but as to the remainder of the discussion what you believe is proprietary and would need to remain confidential. If you R & R C 0 U R T R E P 0 R T E R S 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 10 f \ (' 1 wanted to address that now fine, if not then after the hearing 2 you could get with the staff and look through the application 3 and we can find out what you wish to assert confidentiality 4 over. 5 MR. JONES: Thanks for that opportunity. I'd like to 6 exercise that option that in -- elaborating on that I think we 7 can make available for the public record for certain exhibits 8 A, F and part of C that were included with my letter dated June 9 27 to the Commission. And I'd like to explore after the 10 meeting which portions of exhibit C, which was the Three Mile 11 Creek technical report, I think portions of that can be made 12 available to the public record as well. ( 13 CHAIR NORMAN: And exhibit B is a log and..... MR. JONES: It's a log that identifies the coal 14 15 markers..... 16 CHAIR NORMAN: Yes. And..... 17 MR. JONES: .....seen within the well, right. 18 CHAIR NORMAN: And based on what you know now is it your 19 intention to assert confidentiality for the log? 20 MR. JONES: Correct. 21 CHAIR NORMAN: But A would not be confidential and after 22 you've reviewed it the technical report described in exhibit C 23 also could be make part of the public record? 24 MR. JONES: Portions of it could as well as exhibit F. 25 CHAIR NORMAN: Okay. ( R & R C 0 U R T R E P 0 R T E R S 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 11 ,I ~ 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( ( COMMISSIONER FOERSTER: And this is outside your area again, but I've got to ask. If you're intending to commingle different sandbodies, what have you done to determine that this commingling won't cause waste and will allow you to do the necessary reservoir management to ensure maximum recovery? Sorry for the question. MR. JONES: I understand. All of the intervals are within the Beluga formation, we've identified them as Tsuga sands, roughly sands we've identified as Tsuga 2.2 through 2.6. Each interval will hopefully -- well, we know will produce different amounts of gas, some better than others, but we believe that the lowest Tsuga 2.6 interval will comprise the largest aerial extent that still falls within the participating area. And as you move up the well bore the aerial extent constricts. So we feel that by virtue of the participating area being approved by the DNR and CIRI that those two parties as well as Aurora feel that all the correlative rights are being protected and no waste will occur. COMMISSIONER SEAMOUNT: Mr. Jones, there's some uncertainty over the depths of the different reservoirs within the pool. Afterwards could you get together with the staff and pin down, you know, on a type log the measured and true vertical depths or sub-sea depths with them..... MR. JONES: Yes. COMMISSIONER SEAMOUNT: .....so we can get that into the R & R C 0 U R T R E P 0 R T E R S 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 12 13 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 R & R C 0 U R T R E P 0 R T E R S COMMISSIONER SEAMOUNT: Okay. Thank you. remedial action, all intervals will be opened up concurrently. to take some remedial action. And if successful with that hopefully they'll cleanup by themselves, but if not we'll have have to cleanup those lower zones as we produce this well and of the clays around the producing zones. So we're going to has damaged some of the lower Tsuga intervals and expanded some sands. When we abandoned the well originally back in January there was some water left within the well bore that apparently shallower formations initially, we see those as the better the well occurred on 8/14. We are producing actually from the MR. JONES: A little bit of both. First production from pressure declines? you going to like start at the bottom and come up as the bring them all on at the same time within that interval or are 5,364 feet. COMMISSIONER SEAMOUNT: And you intend to commingle them, formation has a measured depth of 5,531 feet with a T.V.D. of And the bottom of the 2.6 Tsuga interval of the Beluga formation is 1,700 foot measured depth and 1,623 feet T.V.D. MR. JONES: The top of the Tsuga interval of the Beluga COMMISSIONER SEAMOUNT: Okay. that information? MR. JONES: Yes, I've got that presently if you would like order? { ( (" 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( 14 ANCHORAGE, ALASKA 99501 810 N STREET (907)277-0572/Fax 274-8982 R & R C 0 U R T R E P 0 R T E R S But we basically see these Tsuga intervals of the Beluga data was helpful, but it didn't answer all of our questions. formation and has posed some problems for us and the seismic seeking, but the Beluga formation's a bit of a complex that because he could give you exactly the information you're MR. JONES: Yes, I wish my geologist was here to expand on that compels you to come to the Commission? spacing exception, what is it about this particular reservoir this reservoir that you think would require or justify the here, but if you could sum up the particular characteristics of again for me something that you have already addressed in this CHAIR NORMAN: And this may be asking you to go -- review technique to open up those lower zones. having to spend money to do some kind of a fracture stimulation MR. JONES: Hopefully it will and we'll be relived of itself up? will clean itself up, that pressure will just allow it to clean COMMISSIONER FOERSTER: .....and just the upper is producing? MR. JONES: Correct. Right. COMMISSIONER FOERSTER: So you're hoping that the lower MR. JONES: We..... perforations in the lower and the upper..... COMMISSIONER FOERSTER: So currently do you have open MR. JONES: Okay. ~" ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( 15 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 R & R C 0 U R T R E P 0 R T E R S COMMISSIONER SEAMOUNT: I'm fine. Commissioner Seamount? CHAIR NORMAN: Yes, I understand. Thank you. into our drilling plans. will eliminate the need for that six week period to be built time and money, and if we can get pool rules established it six week durations and those -- what that means to Aurora is MR. JONES: Well, spacing exceptions require approximately or not, I'm more thinking out loud when I ask that question. make a better decision overall on field rules? You can respond delineate things more clearly so that we would then be able to CHAIR NORMAN: The question that's going through my mind is whether some further drilling with well exception might help will be beneficial for all parties. not only wells 2 and 3, but hopefully 4 and 5 as well which the establishment of some pool guidelines allowing us to drill each time we drill subsequent wells or seek pool rules to have governmental section requiring us to seek either spacing orders and production, unfortunately it's just going to fall within a us target the subsequent wells. But we feel that these Tsuga intervals have further potential for additional gas exploration identify where these lenticular sandbodies may migrate to help that causes us a little bit of complications in trying to embedded sandbody that encompasses an entire area and therefore formation being very striated and discontinuous, not an evenly ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( 16 ANCHORAGE, ALASKA 99501 810 N STREET (907)277-0572/Fax 274-8982 R & R C 0 U R T R E P 0 R T E R S I should mention that a transcript of this hearing will be within the Three Mile Creek unit participating area. Gas, LLC to establish pool rules for the Three Mile Creek unit approximately 9:35 a.m. and this is the application of Aurora CHAIR NORMAN: We'll go back on the record, the time is (On record - 9:35 a.m.) (Off record - 9:30 a.m.) minute recess and then we'll come back on the record. testimony? Okay. The Chair sees none. We will take a five Are there any persons present here who wish to offer the hearing. see if there are any remaining questions and that will conclude on everyone's time and then we'll come back on the record to do a final, collective questions which I think will economize not we will take a brief five minute recess and I would like to they wish to offer? If there are we will hear it, if there are ask if there are any other persons that have testimony that if you would remain, I believe what we will do -- I'll first CHAIR NORMAN: Are there any other persons -- Mr. Jones, got this letter from CIRI approving the P.A. available when you need it. MR. JONES: I just wanted to remind the board that I've CHAIR NORMAN: Do you have anything more to add? COMMISSIONER FOERSTER: No more questions. CHAIR NORMAN: Commissioner Foerster? ".' ( ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( ( ~, ~ prepared and anyone desiring a copy can see the Commission's special assistant or R & R Court Reporting and obtain a copy. Mr. Jones, the application that you have submitted is generally very complete and I think the Commissioners are of the opinion it is well-done. For future reference we would like to have someone to be able to speak directly to it and the reason is that these are public proceedings, often correlative rights are involved, often members of the public may be concerned about any -- a whole variety of issues, protection of their water supply, different things. And so the Commission has an obligation to conduct as much business as possible in public and have as much testimony as we can in public. Just as you would expect if you held acreage adjacent to this and someone else was appearing before us, you, attending this hearing would expect as much public information as possible to come out so you would know how to respond and would know what's going on. And I would appreciate it if you would -- again I commend Aurora and we appreciate you coming up and testifying and the application is very complete and thorough and I'll ask you to meet with staff afterwards, go through it with the understanding that the Commission will expect a maximum amount of that information to be part of the public record if that's what we're going to base our decision on. So my comment is mainly just in the future if and when R & Reo U R T R E P 0 R T E R S 810 N STREET (907)277-0572/Fax 274-8982 ANCHORAGE, ALASKA 99501 17 18 ANCHORAGE, ALASKA 99501 810 N STREET (907)277-0572/Fax 274-8982 R & R C 0 U R T R E P 0 R T E R S rule on this as expeditiously as possible. Thank you for attending today, Mr. Jones. And we will disclosure. understanding that we do have a bias toward maximum public to remain confidential then we will work on that with the and if Mr. Jones believes any of this is proprietary and needs satisfied in this record. The staff will meet with Mr. Jones are satisfied that the questions that we have reviewed are documentation filed in support of this and the Commissioners observe for the record that there is a fairly thick set of COMMISSIONER FOERSTER: Thank you. MR. JONES: Right. COMMISSIONER FOERSTER: That's all I have. CHAIR NORMAN: Okay. I'll ask finally now, the -- I will MR. JONES: That would be the Three Mile Creek #1 well. the Beluga intervals. For which well were these depths? us some T.V.D.s and measured depths for the tops and bottoms of COMMISSIONER FOERSTER: Before we took the recess you gave CHAIR NORMAN: Commissioner Foerster? COMMISSIONER SEAMOUNT: I have no further questions. your application. Good. Commissioner Seamount? contested hearing then I think that absence would be fatal to like an expert here to speak to that. And if this were a understanding of the geology of the reservoir, then we would there is a presentation like this and it does rest upon some ( ,{ ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( 19 ANCHORAGE, ALASKA 99501 810 N STREET (907)277-0572/Fax 274-8982 R & R C 0 U R T R E Þ 0 R T E R S 0819 (Recessed - 9:40 a.m.) adjourn at 9:40 a.m. been addressed? Very well. Then without exception we will any members of the staff that have any questions that have not Are there any other persons that have any questions? Are there CHAIR NORMAN: Are there any -- and now you're excused. MR. JONES: Thank you. ( ( ·r ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( ~~~ Notary Public in and for Alaska My Commission Expires:10/10/06 IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal this 17th day of August, 2005. THAT this Public Hearing, as heretofore annexed, is a true and correct transcription of the proceedings taken and transcribed by Lynn Hall. THAT the annexed and foregoing Public Hearing held on August 16th, 2005 was taken by Lynn Hall, commencing at the hour of 9:05 o'clock a.m, at the Alaska oil and Gas Conservation Commission of Alaska in Anchorage, Alaska; I, Rebecca Nelms, Notary Public in and for the state of Alaska, residing at Anchorage, Alaska, and Reporter for R & R Court Reporters, Inc., do hereby certify: UNITED STATES OF AMERICA ) )55. STATE OF ALASKA ) C E R T I F I CAT E ~ ~,.., ( 1 2 3 4 5 6 7 8 9 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 ( ~fCIRI { { August 10, 2005 Attn: Carol Lee Petroleum Land Manager Department of Natural Resources Division of Oil & Gas 550 West 7th Avenue, Suite 800 Anchorage, AK 99501-3560 RE: Three Mile Creek Participating Area Dear Carol: Please consider this letter as approval of the July 29, 2005 Finding and Decision issued by the Department of Natural Resources approving a June 6, 2005 application to fonn the Three Mile Creek Participating Area. It is our understanding this Finding and Decision was amended based on additional well test data and a meeting with Aurora representatives on August 2, 2005 which resulted in a "redefinition" of the Three Mile Creek PA effective July 1,2005. This approval is also based on our review of your letter dated August 8, 2005 noting the redefinition of the stratigraphic interval included in the P A. Please do not hesitate to contact me or Teresa Ressler if you have questions or require additional infonnation. Thank you! Sincerely, ~.~~ Kim Cunningham Land & Resource Manager cc: Teresa Ressler, CIRI Randall Jones, Aurora Gas, LLC ,.------ ___.'a.~'_"_"____"_""___'___'_~' __.__._..__.._....___. 2525 "C" STREET, SUITE 500 · P.O. BOX 93330 · ANCHORAGE, ALASKA 99509-3330 (907) 274-8638 · FAX (907) 279-8836 · Web Site: www.ciri.com #11 7Ó~7 ,·793- /zzc-/ Cj()7 ,:J&r'- gg ( 3 (pLEASE PRI~ "- j£ l/~ ~~ V/G:<;; /(o9cc (!4~C?~ I~b' b)/¡{!/ })()€/"& ðk4- 1Þ7- ~C- ALASKA OIL AND GAS CONSERVATION COMMISSION ¿p. // 'óS- Date: D (b Time q .'D~) A /f.,( MEETING-Subiect ~I~e /l{,f,¿ ~ ~.t¡;¡ 404-"( ~ TELEPHONE NAME ~ AFFILIATION ) " ) ) j ST A TE OF ALASKA OIL AND GAS CONSERVATION COMMISSION Three Mile Creek Pool Rules Hearing August 16,20059:00 AM NAME - AFFILIATION ADDRESS/PHONE NUMBER TESTIFY (Yes or No) (~9ASE PRINT) , 1 rí J'tØv) Ne SOY) r 8\-ru 1-euM NeuJ5 N ð TQ,M~(J,~¿)<tr-- K'JGc..(. ~cJ /¿CJ--ddi ~ CPt- A-I1I&tur~ U-L Yév- #10 ) 1 Il FRANK H. MURKOWSKI GOVERNOR DEPARTMENT OF NATURAL RESOURCES DIVISION OF OIL & GAS 550 WEST 7TH AVENUE, SUITE 800 ANCHORAGE, ALASKA 99501-3560 PHONE: (907) 269-8800 FAX: (907) 269-8938 CERTIFIED MAIL RETURN RECEIPT REQUESTED August 8, 2005 RECEIVED AUG I I 200S Alaska Oil & Gas Cons Comm' . . , "ilSSlon Anchorage Mr. Randall D. Jones, Manager, Land & Negotiations Aurora Gas, LLC 10333 Richmond Avenue, Suite 710 Houston, TX 77042 Re: Three Mile Creek Unit Three Mile Creek Participating Area Finding and Decision Amended Dear Mr. Jones, On July 29, 2005, the Division of Oil and Gas (the Division) issued a finding and decision approving a June 6, 2005 application to form the Three Mile Creek Participating Area (the Decision). The Division based the Decision, in part, on production test data that Aurora Gas· LLC (Aurora), the Three Mile Creek Unit operator, submitted in support of its application. Aurora perforated and perfonned drill-stem tests on four zones of interest in the Three Mile Creek #1 Well during January 2005. The well produced gas from the Tsuga 2-6 interval in the Beluga Formation at a rate of approximately 2 million cubic feet per day (MMCFD). The Decision limited the participating area to the productive interval and described the Three Mile Creek P A as "the Beluga Formation Sands between 3,530' and 4,605' measured depth (MD) in the TMC Unit 1 well within the area described in Exhibit C and depicted on Exhibit D to the Agreement. " However, on July 29, 2005, the Division received additional data from well tests that Aurora conducted in June 2005. Aurora perforated and tested five shallower Beluga intervals, which produced in excess of 2 MMCFD. Division staff met with representatives from ,Aurora on August 2, 2005, to review the new well data and to discuss the vertical extent of the Three Mile Creek P A. By letter dated August 2, 2005, Aurora requested the stratigraphic interval included in the Three Mile Creek P A be redefined to include the Tsuga 3 through Tsuga 6 intervals, effective July 1, 2005. Redefining the Three Mile Creek P A will promote the conservation of all natural resources, promote the prevention of economic and physical waste, and provides for the protection of all þarties in interest including the State. Amending the Decision adequately and equitably protects the public interest, is in the State's best interest, and it meets the requirements of AS "Develop, Conserve, and Enhance Natural Resources for Present and Future Alaskans." Aurora Gas, LLC Three Mile Creek Unit Three Mile Creek P A Finding and Decision Amended Page 2 of2 ') ) 38.05.180(p) and 11 AAC 83.303 (a) and (b). Item 2 in Section N of the Decision is amended to read as follows: 2. The TMC PA includes: a. 960.00 acres described in Exhibit C and depicted in Exhibit D, and b. all unitized substances in the Beluga Formation Sands between 1,700' MD/1,623' TVD and 5,531' MD/5,364' TVD in the TMC Unit #1 well within the boundary of the approved participating area. Redefinition of the stratigraphic interval included in the Three Mile Creek P A does not change the legal description of the tracts within the participating area or affect the allocation of production or costs approved in the Decision issued on July 29,2005. A person affected by this Decision may appeal it in accordance with 11 AAC 02. Any appeal must be received within 20 calendar days after the date of "issuance" of this Decision, as defined in 11 AAC 02.040 (c) and (d). Appeals may be mailed or delivered to Thomas E. hwin, Commissioner, Department of Natural Resources, 550 W. ih Avenue, Suite 1400, Anchorage, Alaska 99501; faxed to 1-907-269-8918, or sent by electronic ;", tnail to., dnr_appeals@dnr.state.ak.us. This Decision takes effect immediately. If no'&Ppeal is filed by the appea:l deadUne, this Decision becqmes a final administrative order' anQ; dècisi.on:' of:' the ~ep~mèn("<?n thè ~~ 1 st' day after Issuàn~e. An eligible person must first app~al tl1is'DeCisiQn in accordance \ with 11 AAC 02 before appeaiing this Decision to Superior ,Court:: ,~ 'A' c'opy of 11 AAC' 02 m~y be obtained from any regional infonnation office of the Depårtment of Natural Resources. Sincerely, CJ~ , -Ç~ Mark D. Myers Director cc: Teresa Ressler, COO John Nonnan, Chair AOGCC Jim Cowan, Resource Evaluation Section Jeff Landry, Assistant Attorney General #9 \. ) ) .' ~AulOl'B Gas, LLC www.aurorapower.com August 2, 2005 Cook Inlet Region, Inc 2525 C Street, Suite 500 Anchorage, Alaska 99509-3330 Mr. Mark Myers, Director Mr. Thomas Irwin, Commissioner Department of Natural Resources Division of Oil and Gas 550 West 7th Avenue, Suite 800 Anchorage, Alaska 99501 Attn: :Mr. Keith Sanders Vice President - Legal SENT BY FACSIMILE & FEDEX MAIL RETURN RECIEPT REQUESTED Gentlemen: RE: P A Redefmition Request Three Mile Creek Participating Area This letter requests a redefinition of the description of the stratigraphic interval applicable to the recent P A Decision :trom the Department of Natural Resources (DNR) and the Cook Inlet Region, Inc. (COO) by Aurora Gas, LLC, as Operator of the Three Mile Creek Unit. Presently the DNR-approved Three Mile Creek Participating Area covers the Beluga Fonnation and is limited to the Beluga Formation Sands between 3,530' to 4,605' MD in the Three Mile Creek No. 1 Well. Aurora hereby respectfully requests the interval sand limits be redefined as being from 1,700' MD/l,623' TVD, which is the top of the Tsuga 3 interval, to 5,531' MD/5,364' TVD, which is a Tsuga 7 interval, retroactively effective to the effective date of the aforementioned P A Decision. The reason for this request is subsequent to the submission of the P A Application Aurora re-entered the well and obtained favorable test results from several Beluga (Tsuga) intervals above the 3,530' MD level which were cited within Aurora's Application as a planned procedure to be conducted in June, 2005. These test results have been furnished to the DNR and COO and attached is an Exhibit "B" reflecting the Beluga Coal Markers (2-3 to 2-7) for your review. Since the Tsuga intervals ,in the Beluga Reservoir are stacked sandstone bodies, the composite area of the reservoir's extent controlled by structure, sandstone distribution and confinned by seismic and well data, should be summed together to define the stratigraphic interval of the P A. Given the complexity from each individual interval within the Reservoir and the lenticular & discontinuous sand nature, the only economically viable approach to develop the Beluga Reservoir is to commingle production and combine these intervals into one P A. The requested redefmition of the TMC PA remains in the best interests of the State of Alaska, the DNR, and COO, and is consistent with the authority and required criteria necessary for the DNR and COO; therefore, AURORA requests DNR and COO approve this redefmition. Sincerely, &1zo~~ Manager, Land & Negotiations rj ones@aurorapower.com 10333 Richmond Avenue, Suite 710 · Houston, Texas 77042. (713) 977-5799 · Fax (713) 977-1347 1400 West Benson Blvd., Suite 410· Anchorage, Alaska 99503. (907) 277-1003. Fax (907) 277-1006 ) Department of Natural Resources 8/2/2005 ) 2 Enclosures cc: A. Clifford S. Pfoff E. Jones Forest Oil Corporation 310 "K" Street Anchorage, Alaska 99501 Attn: Mr. James D. Arlington Land Manager Alaska Oil and Gas Conservation Commission 333 W 7th Avenue, Suite No. 100 Anchorage, Alaska 99501-3539 Attn: Mr. Steve Davies tIne pa decisionredefmitionrequest #8 ) DIVISION OF OIL & GAS FRANK H. MURKOWSKI GOVERNOR DEPARTMENT OF NATURAL RESOURCES 550 WEST 7TH AVENUE, SUITE 800 ANCHORAGE, ALASKA 99501-3560 PHONE: (907) 269-8800 FAX: (907) 269-8938 CERTIFIED MAn.. RETURN RECEIPT REQUESTED Mr. Randall D. Jones, Manager, Land & Negotiations Aurora Gas, LLC 10333 Richmond Avenue, Suite 710 Houston, TX 77042 RECEIVED AUG 082005 Alaska Oil & Gas Con[l C A""· om . nchorage fI1l.q¡sio/1 July 29, 2005 Re: Three Mile Creek Unit Three Mile Creek No. 1 Well Certified Capable of Producing in Paying Quantities Dear Mr. Jones, On April 22, 2005, Aurora Gas, LLC (Aurora), the Three Mile Creek Unit Operator,. requested that the Division of Oil and Gas (the Division) deem the Three Mile Creek No., '1 Well (the TMC ,Unit #1 Well) capable of producing in paying quantities! under 11, AAC83.3612 (the Application). The Application included: Exhibit A, a map showing the well location; Exhibit B, a summary of monthly operating expenses; Exhibit C, an index of geo-technical data; and Exhibit D, Operating Cost Analysis and wellhead price information. Aurora also provided well test results, pressure graphs, and the Alaska Oil and Gas Conservation Commission (AOGCC) form 10-407, Well Completion or Recompletion Report and Log for the TMC Unit #1 Well. On July 21, 2005, the Division received a revised Exhibit B with annual operating expenses. The Division cannot disclose the details of the confidential data3, but the geological, geophysical, engineering, and financial data provided in support of the Application, and otherwise available to the Division, indicate that the TMC Unit #1 Well is capable of producing hydrocarbons in paying quantities from the Beluga Formation within the Three Mile Creek Reservoir. 1 11 AAC 83.395 (4) "paying quantities" means quantities sufficient to yield a return in excess of operating costs, even if drilling and equipment costs may never be repaid and the undertaking considered as a whole may ultimately result in a loss; quantities are insufficient to yield a return in excess of operating costs unless those quantities, not considering the costs of transportation and marketing, will produce sufficient revenue to induce a prudent operator to produce those quantities; 2 11 AAC 83.361 states: For the purposes of 11 AAC 83.301 - 11 AAC 83.395, a well will be considered capable of producing hydrocarbons in paying quantities, as defined in 11 AAC 83.395, when so certified by the commissioner following application by the lessee or unit operator. The commissioner will require the submission of data necessary to make the certification, including all results of the flow test or tests, supporting geological data, and cost data reasonably necessary to show that the production capability of the well satisfies the economic requirements of the paying quantities definition. 3 AS 38.05.035(a)(9)(C) and (D) "Develop, Conserve, and Enhance Natural Resources for Present and Future Alaskans." Aurora Gas, LLC ) Three Mile Creek Unit Three Mile Creek Unit #1 Well Certification Page 2 of 4 ) Background: On January 30,2004, the Division and Cook Inlet Region, Inc. (CIR!) approved the formation of the Three Mile Creek Unit, effective January 31, 2004. The Three Mile Creek Unit is located on the West side of Cook Inlet, about four miles west of the Beluga River Unit and seven miles north of the village of Tyonek. The unit area encompasses approximately 8,080 acres within seven oil and gas leases. Approximately 68.3% of the unit area lies within four State of Alaska (State) leases, and the remaining unit area lies within three CIRI leases. The AOGCC issued permit number 204-183, which authorized Aurora to drill the TMC Unit #1 Well (API 50-283-20108-00). Aurora spud the well on December 3, 2004, and reached total depth on December 24, 2004. The surface location is on State lease ADL 388233, 1,504' FNL and 145' FWL of Section 35, Township 13 North, Range 11 West, Seward Meridian (TI3N, R11W, SM). Drilled to 8,185' measured depth (MD), or 8,015.6' true vertical depth (TVD), the bottom-hole location is 1,540' FNL and 688' FEL within Section 34, T13N, R11W, SM. During January 2005, Aurora perforated and performed drill-stem tests on four zones of interest, two in each of the Tyonek and Beluga formations. Aurora plugged back the two deeper Tyonek zones as non-commercial and installed a completion packer and tubing above the two shallower Beluga zones (Tsuga 2-6). The well produc~d gas from the Tsuga 2-6' intefval in the Beluga Formation at a rate of approximately 2 millìon cubic feet per day (MMCFD). The top of the productive Beluga Fonnation occurs at 3,530' MD and the base of the interVal occurs at 4,605' MD in the TMC Unit #1 WeÜ. ' ',:' I, : ,," .'. ",',' . ' " . ¡......' "" , .. Aurora shut-in the well and released the rig on January 19, 2004. In June 2005, Aurora reinstalled a rig to perforate and test five shallower prospective Beluga intervals. Favorable results from these additional Beluga sandstone tests may require dual or selective completions to isolate the shallower zones from the deeper ones, due to initial reservoir pressure differential between the multiple zones. On June 6, 2005, Aurora applied to form the Three Mile Creek Participating Area within the Three Mile Creek Unit, and the Initial Plan of Development includes plans to install gas processing facilities and construct a pipeline to transport the gas to market. The Division and CIRI are currently reviewing Aurora's Three Mile Creek Participating Area Application. Aurora anticipates production startup in early August 2005. Decision: Aurora evaluated the geological data and flow tests to estimate gross daily production from the TMC Unit #lWell, considered the market value of the gas, and estimated the cost to operate the well. Aurora's calculations showed a return in excess of operating costs. Aurora complied with all applicable regulations, and the flow test results, geological data, and economic data support approval of the Application under 11 AAC 83.361. I certify the TMC Unit #1 Well is capable of producing hydrocarbons in paying quantities as defined in 11 AAC 83.395.4 4 The Commissioner, Department of Natural Resources delegated his authority under 11 AAC 83.3 to the Division Director. ,~ Aurora Gas, LLC ) Three Mile Creek Unit Three Mile Creek Unit #1 Well Certification Page 3 of 4 A person affected by this Decision may appeal it in accordance with 11 AAC 02. Any appeal must be received within 20 calendar days after the date of "issuance" of this Decision, as defined in 11 AAC 02.040 (c) and (d). Appeals may be mailed or delivered to Thomas E. Irwin, Commissioner, Department of Natural Resources, 550 W. 7th Avenue, Suite 1400, Anchorage, Alaska 99501; faxed to 1-907-269-8918, or sent by electronic mail to dnr_appeals@dnr.state.ak.us. This Decision takes effect immediately. If no appeal is filed by the appeal deadline, this Decision becomes a final administrative order and decision of the Department on the 31 st day after issuance. An eligible person must first appeal this Decision in accordance with 11 AAC 02 before appealing this Decision to Superior Court. A copy of 11 AAC 02 may be obtained from any regional information office of the Department of Natural Resources. Sincerely, ~y~ Mark D. Myers Director cc: Teresa Ressler, COO John Norman, Chair AOGCC Jim Cowan, Resource Evaluation Section Jeff Landry, Assistant Attorney General , , , Attachment 4 ) ) THREE MILE CREEK UNIT APPROVAL OF AN APPLICATION TO FORM THE THREE MILE CREEK PARTICIPATING AREA FINDINGS AND DECISION OF THE DIRECTOR, DIVISION OF OIL AND GAS UNDER A DELEGATION OF AUTHORITY FROM THE COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES, STATE OF ALASKA July 29,2005 ) ) TABLE OF CONTENTS I. APPLICATION FOR THE FORMATION OF THE TMC PA......................................................................l II. ANALYSIS OF THE APPLICATION FOR THE FORMATION OF THE TMC PA.................................2 1. PRIOR EXPLORA nON AND DEVELOPMENT ACTIVITIES AND THE GEOLOGICAL AND ENGINEERING CHARACTERISTICS OF THE RESERVOIR........................................................................................................... 2 2. THE ApPLICANTS' PLAN OF DEVELOPMENT. ................ ........................ .................... .................. ................... ...... 4 3. THE ENVIRONMENTAL COSTS AND BENEFITS...................................... .......................................................... ..... 5 4. THE ECONOMIC COSTS AND BENEFITS TO THE STATE ........................................................................................ 6 5. OTHER RELEVANT FACTORS.............................................................................................................................. 7 III. FINDINGS.............. ........................................... ................. ............................................... ....................... ............8 1. PROMOTE THE CONSERV A nON OF ALL NATURAL RESOURCES ........... ................................................................ 8 2. PROMOTE THE PREVENTION OF ECONOMIC AND PHYSICAL WASTE.................................................................... 8 3. PROVIDE FOR THE PROTECTION OF ALL PARTIES OF INTEREST, INCLUDING THE STATE ...................................... 9 IV. D ECIS ION ... ....................................... ...... ......................................................................... ................. ... .............. 9 V. ATTACHMENTS Attachment 1. Exhibit A, Unit Tracts and Exhibit F, Unit Tract Expense Participation Attachment 2. Exhibit B, Map of the Three Mile Creek Unit Boundary Attachment 3. Exhibit C, P A Tract Production Participation and Exhibit E, P A Tract Expense Pwticipation Attachment 4. Exhibit D, Map of the Three Mile Creek P A Attachment 5. Exhibit G, Three Mile Creek Unit First Plan of Development Attachment 6. Exhibit G-1, Three Mile Creek P A Redetermination Procedures Attachment 7. Exhibit H, Contractual Ownership of the Three Mile Creek Unit Attachment 8. Exhibit I, Contractual Ownership of the Three Mile Creek P A Attachment 9. Exhibit J, Map of the Three Mile Creek Unit Contractual Ownership ) ) I. Application for the Formation of the TMC PA On June 6, 2005, Aurora Gas LLC (Aurora), the unit operator, submitted an application to fonn the Three Mile Creek Participating Area (TMC P A) within the Three Mile Creek Unit (TMC Unit) (the Application). The TMC Unit is located on the West side of Cook Inlet, about four miles west of the Beluga River Unit and seven miles north of the village of Tyonek. The TMC Unit encompasses approximately 8,080 acres within seven oil and gas leases. Approximately 5,520 acres lie within four State of Alaska leases (State Leases) and Cook Inlet Region, me. (CIRI) is the lessor of three oil and gas leases (COO Leases) that encompass the remaining 2,560 acres of the TMC Unit area. The State of Alaska, Department of Natural Resources, Division of Oil and Gas (the State, the DNR or the Division, as appropriate) and COO jointly administer the Three Mile Creek Unit Agreement (the Agreement). Aurora submitted the Application on behalf of itself and Forest Oil Corporation (Forest), the TMC Unit working interest owners (the Working Interest Owners or Applicants, as appropriate). Aurora submitted the Application in accordance with 11 AAC 83.351 and Article 9 of the Agreement. The Application included the following exhibits to the Agreement: Exhibit A, a schedule describing the TMC Unit; Exhibit B, a map of the TMC Unit; Exhibit C, a schedule allocating unitized substances within the TMC P A; Exhibit D, a map of the TMC P A; Exhibit G, the Unit Plan of Development (First POD); and Exhibit G-l, TMC P A redetermination procedures. In addition, Aurora submitted Exhibit H allocating unit expenses and Exhibit 1 allocating participating area expenses in accordance with the contractual ownership interests agreed to between Aurora and Forest. The proposed TMC P A contains portions of three leases and encompasses .960 acres (approximately 12% of the TMC Unit area), including 840 acres within one State Lease, ADL 388233, and 120 acres within the two CIRI Leases, C-061394 and C-061502. Aurora is the only working interest owner in the leases proposed for inclusion in the TMC P A, although Aurora has a contractual agreement to transfer 30% working interest ownership to Forest. Mobil Exploration and Producing North America, Inc. holds 1.46% overriding royalty interest in all three leases included in the TMC PA and Marathon Oil Corporation has 1.5% overriding royalty interest in C-061502. The State retains a 12.5% royalty on production from the State Lease and the three CIRI Leases specify a 162/3% royalty rate. For the reasons set forth in this Findings and Decision, the Division approves the fonnation of the TMC PA effective July 1, 2005, subject to concurrent approval by CIR!.'¡ Supporting geological, geophysical, and engineering data provided by Aurora and otherwise available to the Division justifies the formation of the TMC P A. The data indicate that the Beluga Formation within the proposed TMC PAis capable of producing or contributing to the production of gas in paying quantities. 1 The TMC PAis stratigraphically limited to the Beluga Formation Sands between 3,530' and 4,605' measured depth (MD) in the TMC Unit 1 well within the area 1 Paying Quantities is defined in 11 AAC 83.395(4) as follows: "paying quantities" means quantities sufficient to yield a return in excess of operating, costs, even if drilling and equipment costs may never be repaid and the undertaking considered as a whole may ultimately result in a loss; quantities are insufficient to yield a return in excess of operating costs unless those quantities, not considering the costs of transportation and marketing, will produce sufficient revenue to induce a prudent operator to produce those quantities. Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 1 ) ) described in Exhibit C and depicted on Exhibit D to the Agreement. The Division also approves the allocation of gas produced from the TMC P A to the individual leases on a surface acreage basis and the working interest owners shall pay royalties on that production based on the information set forth in Exhibit C. Therefore, 87.5% of production from the TMC PA will be allocated to the State Lease and 12.5% to the CIRI Leases and Aurora will be solely responsible for paying royalties to the State and COO. Unit expenses and TMC P A expenses, excluding royalties, will also be allocated on a surface acreage basis, but the expenses will be divided between Aurora and Forest based on the Working Iinterest Owners' contractual ownership set forth on Exhibit H and Exhibit I, respectively. The Division's evaluation of the Application is set out in this Findings and Decision. II. Analysis of the Application for the Formation of the TMC PA The Commissioner of DNR (the Commissioner) reviews unit-related applications, including the formation of participating areas, under AS 38.05.180(p) and 11 AAC 83.301-11 AAC 83.395. The State statute and the DNR regulations set out the standards and criteria for formation of a participating area. The Commissioner or his designee2 may approve the formation of a participating area if he determines it is necessary or advisable in the public interest3. The Division's review of the Application is based on the criteria set out in 11 AAC 83.303 (a) and (b). The Division ' s evaluation of the Application under the six factors set out in 11' AA(283.303, i :(b) is ,set out directly below, followed by the Division's findings under the subsection (a) criteria I, and the Division's decision approving the Application. ~', 1. Prior Exploration and Development Activities and the Geological and Engineering Characteristics of the Reservoir Technical data submitted in support of the Application included the following: type log, structural cross-section, stratigraphic correlation, log analysis, FMI analysis, sidewall core analysis, seismic sections, and structure maps. The Division will hold these data confidential under AS 38.05.035(a)(9)(C) and 11 AAC 96.220. Cook Inlet area geology maps from the 1960s and 1970s identified the regional fault and anticlinal trend that is the structural basis of the TMC Unit. The Bruin Bay fault is the main structural feature in the unit area. The Moquawkie Anticline, a prominent anticlinal trend with an axial trace paralleling the fault, lies adjacent to and east of the Bruin Bay fault. Aurora identified two structural highs along the anticline in the TMC Unit area, the Three Mile Creek prospect (south) and the Olson Creek prospect (north), which are separated by a structural saddle. Aurora's objective in the Initial Plan of Exploration (Initial POE) was to delineate and test gas sands in the 2 By memorandum dated September 30, 1999, the Commissioner approved a revision of Department Order 003 that delegated this authority to the Director of the Division of Oil and Gas. 3 The proposed unit action must be necessary or advisable in the public interest: "To conserve the natural resources of all or part of an oil or gas pool, field, or like area, the lessees and their representatives may unite with each other, or jointly or separately with others, in collectively adopting or operating under a cooperative or unit plan of development or operation of the pool, field, or like area, or part of it, when detennined and certified by the commissioner to be necessary or advisable in the public interest." AS 38.05.180(p). Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 2 ) ) Beluga Formation above 4,300 feet true vertical depth (TVD) within the two prospect areas. The Tertiary (Miocene) Beluga Formation is present in the subsurface over much of the upper Cook fulet Basin. It is well exposed in outcrops on the southern Kenai Peninsula near Homer and along the Beluga River. The Beluga Formation thins or is truncated locally on structural highs on the northeastern side of the Cook Inlet Basin. The Beluga Formation consists of interbedded, poorly sorted sandstone, siltstone, claystone, sub-bituminous coal and ash beds, with locally abundant pebbly sandstone and pebble conglomerate. The depositional environment for the Beluga Fonnation is interpreted as shallow braided streams. The Beluga Formation is 4,150 feet thick at its subsurface type section in the SOCAL Beluga River #1 well (now known as BRU #212-35), located east of the TMC Unit, within the Beluga River Unit. fu the nearby Beluga River field, the Beluga Formation reservoir has an average porosity of 24%, and contains over 100 feet of net pay. fu addition to the Beluga River field, the Beluga Fonnation also produced gas at Swanson River, Cannery Loop, Kenai, Lewis River, Nicolai Creek, North Cook Inlet, Stump Lake, Beaver Creek, and Theodore River fields. The Three Mile Creek Reservoir is constrained by the Moquawkie anticline to the west and prior exploration wells drilled to the southeast and east. The southeast boundary is defined by the Three Mile Creek State #1 well, drilled by Superior Oil Company in October 1967, which is located within Tract 4 of the TMC Unit. Drilled to a total depth of 13,773 feet to explore for oil, Superior . . :fôùnd indications of gas in the Beluga Formation, but abandoned thewelLwithbut testing to determine if the well could produce hydrocarbons in paying quantities. ; .. The North Tyonek State #1 well, drilled by Phillips Petroleum Company Ïit. 1973, is located just outside the eastern boundary of TMC Unit. Phillips drilled to a total depth of 6,063 feet and tested several intervals in the well, but abandoned the well because it could not produce gas in paying quantities. The State and CJRI approved the formation of the TMC Unit effective January 31, 2004, for the exploration and development of two natural gas prospects identified within the unit area, the Three Mile Creek Prospect and the Olson Creek Prospect. The 3-year Initial POE contained plans to drill an exploration well in the Three Mile Creek Prospect, acquire new seismic data over the unit area within the first two years, and drill a second exploration well in the Olson Creek Prospect in the third year. In 2004, Aurora acquired and evaluated 44 miles of new 2D seismic data. In December 2004, Aurora drilled the TMC Unit 1 well to 8,185' MD, 8,015.6' TVD. Aurora tested several intervals in the Tyonek and Beluga Formations in the well. The type log for the TMC Unit 1 well defines the stratigraphic interval of the productive Beluga Formation in the TMC P A. The top of the Beluga Formation occurs at 3,530' MD and the base of the interval occurs at 4,605' MD in the TMC Unit 1 well. The well test produced gas at a rate of approximately 2 million cubic feet per day (MMCFD) from the Tsuga 2-6 interval in the Beluga Formation. Aurora mapped the depth of the lowest known gas for each productive interval based on its interpretation of seismic and well control data. The TMC P A includes all 40-acre aliquot parts4 that are 4 I 1 AAC 88.185( 11) "legal subdivision" means an aliquot part of a section of land according to the public land rectangular survey system, not Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 3 ) ) intercepted by the 4,000' depth contour line depicted on Aurora's Tsuga 2-6 depth structure map. The Division cannot disclose the details of the confidential data, but the well and geophysical data provided in support of the Application, and otherwise available to DNR, indicate that the land proposed for inclusion in the TMC PAis known or reasonably estimated to be capable of producing or contributing to production of Unitized Substances in Paying Quantities from the Three Mile Creek Reservoir. The Division's evaluation of the subsurface geology supports the formation of the TMC PA to include the lands described in Exhibit C and depicted in Exhibit D to the Agreement (Attachments 1 and 2 to this decision). The Applicants' prior exploration activities and the geological and engineering characteristics of the TMC P A support approval of the Application under 11 AAC 83.303(b)(2) and (3). 2. The Applicants' Plan of Development Aurora proposed that the First POD be effective July 1, 2005 through January 31, 2007, which supersedes the remaining term of the Initial POE. In the Initial POE, Aurora committed to drill an exploration well within the Three Mile Creek Prospect and acquire additional seismic data over the unit area by January 31, 2006, and form a participating area and drill a second exploration well by January 31, 2007. Aurora fulfilled the first three requirements, and the First POD incorporates the remaining exploration commitment contained in the Initial POE. The First POD includes plans to develop the reserves underlying the TMO'PA and to explore the UIiÎt area outside of the participating area. Aurora will construct a production facility on the Central Pad for water separation, compression, and dehydration 'of the produced gas. Aurora will install a 6-inch gathering line to ship, pipeline quality gas from the Central Pad approximately five miles south to Aurora's Lone Creek pipeline. Sustained production from the TMC PAis scheduled to start in July 2005. Aurora plans to slowly increase the production rate from the TMC Unit 1 well to approximately 5 MMCFD. When cumulative production from the TMC Unit 1 well reaches 300 MMCFD Aurora will shut-in the well to perform a pressure build-up test. If the reservoir pressure test is favorable, Aurora will proceed with further drilling to delineate the TMC PA. The First POD includes plans to install two additional development drilling pads north and south of the Central Pad and drill four delineation/development wells. Aurora plans to drill two wells in 2005, TMC Unit 2 well from the North Pad and TMC Unit 3 well from the South Pad. Data from the first three wells will determine the bottom-hole locations for two additional wells. Aurora anticipates drilling the TMC Unit 4 well from the North Pad and the TMC Unit 5 well from the South Pad in 2006. Primary gas treatment facilities may be located on the North and South Pads with gathering lines installed to ship the gas to the Central Pad where it will be processed for sale. smaller than one-quarter of one-quarter of one section of land, containing approximately 40 acres; where a section of land contains section lots, "legal subdivision" also means those section lots; "legal subdivision" also means a protracted legal subdivision according to any protracted public land rectangular survey prepared by the division or Bureau of Land Management of the Department of the Interior, and made available to prospective applicants for leases; Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 4 ) ) 11 AAC 83.351 (a) states "[T]the participating area may include only land reasonably known to be underlain by hydrocarbons and known or reasonably estimated through use of geological, geophysical, or engineering data to be capable of producing or contributing to production of hydrocarbons in paying quantities." The Division staff believes there is insufficient data to reliably map the Three Mile Creek Reservoir or to judge with any certainty what acreage will contribute to production in paying quantities. Aurora has shown however, that all of the acreage in the proposed TMC P A may fulfill the paying quantities requirement and the activities outlined in the First POD will provide additional data to evaluate Aurora's interpretation of the reservoir. Additional data obtained in the future may require revising the TMC PA boundary. By January 31, 2006, the Unit Operator shall notify the DNR and CIRI if the Working Interest Owners decide not to drill a 2nd Exploration Well in the Olson Creek Prospect, and if so, Tracts 6 and 7 will automatically contract out of the unit and the Working Interest Owners shall pay the State an amount equal to $16 per acre contracted.. If, by January 31, 2006, the Working Interest Owners commit to drill an exploration well in the Olson Creek Prospect, the Unit Operator shall, by January 31, 2007, 1) drill a 2nd Exploration Well to the base of the Tsuga 2-4 interval or the stratigraphic equivalent of the 4,300' TVD marker, as seen in the Three Mile Creek State-l Well, whichever is deeper to a bottom hole location within Tract 6, ADL 388232; 2) log the well (OR or SP, Resistivity and NeutronlDensity or Porosity: appropriate triple combo log); and 3) complete, suspend, or abandon the well. If the Unit Operator fails to drill the2nØ Exploration Well, as described above, by January 31, 2007, then 1) Tract 6 and Tract 7 will automatically contract out of the Three Mile Creek Unit; and 2) the Working Interest -Owners shall pay the State an amount equal to $24 per acre contracted out of the unit. The Application, along with the First POD, contains sufficient plans and commitments to explore the TMC Unit and develop the hydrocarbons within the TMC P A. It protects the interests of the public, COO, and the State by committing the Applicants to drill delineation and production wells in the Three Mile Creek Reservoir, and to explore additional lands outside of the participating area. Therefore, Aurora's plans for development of the Three Mile Creek Reservoir and exploration of the TMC Unit area support approval of the Application under 11 AAC 83 .303(b)( 4). 3. The Environmental Costs and Benefits Approval of the TMC PAis an administrative action that does not authorize any on-the-ground activity and, in itself, has no environmental impact. The DNR's approval of the First POD is only one step in the process to obtain approval to drill wells to develop the known gas reservoir within the TMC Unit. The unit operator must also obtain permits from various State and federal agencies including the Division's approval of a plan of operations. State unitization regulations require the Commissioner's approval of a plan of operations before the unit operator performs any operations on or in the unit area to minimize surface impacts.5 A proposed plan of operations must describe the operating procedures designed to prevent or 5 11 MC 83. 346 . Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 5 ') J minimize adverse effects on natural resources. When reviewing a proposed plan of operations, the Division will consider the unit operator's ability to compensate the surface owner for damage sustained to the surface estate and the plans for rehabilitation of the unit area. Unitization does not waive or reduce the effectiveness of the mitigating measures that condition the lessee's right to conduct operations on these leases. Article 8.2 of the Agreement requires that the unit plan of operations must be consistent with the leases, mitigation measures, and lessee advisories developed by the DNR for the State's most recent Cook Inlet Areawide lease sale. The mitigation measures include habitat and wildlife protection such as stream and waterbody setbacks and seasonal use restrictions to protect sensitive birds and animals. Mitigation measures such as seasonal restrictions on specific activities in certain areas can reduce the impact on bird, fish and mammal populations. State designated primary waterfowl areas protect bird populations. Regulating waste disposal is another way to limit environmental impacts. DNR also requires consolidation of facilities to minimize surface disturbances. With these and other mitigating measures, the anticipated exploration and development related activity is not likely to significantly impact bird, fish, and mammal populations. Exploration and development within the TMC Unit is subject to these mitigation measures, if proposed operations involve State surface or subsurface. When the unit operator submits a unit plan of operations for approval, the Division will apply the current mitigation measures uniformly across the unit, ensuring environmental protections that might not otherwise occur on private lands. However, the Division does not have the authority to approve a plan of operations or impose the State's mitigation measures for operations solely on CIRI lands. The TMC Unit is within the Alaska Coastal Zone, and therefore subject to the Alaska Coastal Management Program (the ACMP). Whether the activity is on State or CIRI land, the appropriate federal, State, and local agencies must determine if the unit operator's plans are consistent with the ACMP, and the lessees may not commence drilling or development operations until all agencies have granted the required permits. Area residents use the TMC Unit area for subsistence hunting and fishing. Oil and gas activity may impact some wildlife habitat and may affect subsistence activity. The environmental impact will depend on the level of development activity, the effectiveness of mitigation measures, and the availability of alternative habitat and subsistence areas. In any case, the anticipated activity within the TMC Unit will have less impact on habitat and subsistence activity than if the lessees developed the leases individually. Unitized exploration, development and production will minimize surface impact. The benefits of consolidated exploration and development, application of the State's Areawide mitigation measures, and the use of existing roads, lower the potential costs to the surrounding environment. Forming the TMC P A minimizes the environmental impacts and costs of exploration and development of the unit area supports approval of the Application under the 11 AAC 83.303(b)(1). 4. The Economic Costs and Benefits to the State Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 6 ') ) Production will be allocated to each tract in the TMC P A based on its surface acreage within the participating area as a percentage of the total acreage in the TMC P A. If Aurora proceeds with delineation and development of the TMC PAin accordance with the First POD, it will acquire additional well data and a year of production data by July 1, 2006. This data may justify a revision of the TMC PA boundary, which would affect the allocation of production to the individual leases. Therefore, the Applicants, the Division, and CIRI agreed to the redetermination procedures set out in Exhibit 0-1. By August 1, 2006, Aurora shall apply to revise the TMC PA based the parties' analysis of the data available through July 1, 2006. The Revised TMC P A will include lands then regarded as reasonably estimated to be producing or contributing to production in paying quantities and exclude lands reasonably proven to be incapable of contributing to production in paying quantities. Following approval by the DNR and CIRI, the Revised TMC P A shall be effective with respect to all parties retroactive to the first day of the commencement of production from the TMC P A. The parties will evaluate the production data and drilling schedule annually, and implement any subsequent revisions of the TMC PAin accordance with the procedures in Exhibit 0-1. The redetermination procedures ensure that production will be allocated based on the best technical data available, and retroactive adjustments will ensure that the parties receive their fair share of royalties on production from the TMC PA. Approval of the proposed TMC P A and the First POD will result in both short-term and long- term economic benefits to the State. TMC PA production will generate construction jobs in the short-term and· some long-term employment. Development and production from the TMC P A will provide royalty and tax revenues· to the State over the life of the field. The lessees· may reinvest revenues in new exploration and development in the State. Additionally, the TMCP A will deliver new natural gas supplies that help to stabilize the local and regional economy. Royalty, tax, and employment benefits derived from production and economic development will far exceed any additional administrative burdens associated with permitting TMC P A facilities, administering the unit leases, or collecting royalties on production. fu summary, the economic benefits outweigh the costs. The working interest owners made meaningful commitments to explore and develop the unit area and the State will receive taxes, royalties, and increased economic activity. The redetermination procedures and retroactive adjustments to the production allocation schedule allow the State to maximize production revenue. Moreover, the discovery of additional gas reserves in Cook fulet may help to maintain stable, low cost energy supplies for the surrounding area. Therefore, the DNR's evaluation of the economic costs and benefits to the State supports approval of the Application under 11 AAC 83.303(b )(5). 5. Other Relevant Factors The Agreement requires joint approval of the Application by the DNR and CIRI because the Three Mile Creek Reservoir underlies both State and CIRI leases. The Division and COO agreed to Aurora's proposal to allocate production from the TMC P A based on surface acreage. With joint management of the TMC P A, the State and CIRI will review Aurora's plans to delineate and develop the reservoir. The TMC Unit Plans of Development must be consistent with State regulations and include plans to explore the area outside of the TMC P A. Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 7 ) ') Reaching agreement on an acceptable development plan and an equitable allocation of production required the cooperation of all parties. Joint man,agement of the TMC Unit and the TMC P A provides for development of State and private lands under a unified plan that reduces environmental impacts, conserves resources, and protects the interests of all parties. Joint management of the TMC P A supports approval of the Application under 11 AAC 83.303(b )(6). III. Findings 1. Promote the Conservation of all Natural Resources The TMC P A will promote the conservation of both surface and subsurface resources through unitized, rather than lease-by-Iease, development. Approval of the Application will reduce both the number of facilities required to explore for and develop reserves and the aerial extent or the footprint required to accommodate those facilities. The formation of oil and gas units, as well as the formation of participating areas within units, generally conserves hydrocarbons. Formation of the TMC P A will provide for efficient, integrated development of the Beluga Fonnation within the TMC Unit. A comprehensive operating agreement and plan of development governing the area will help avoid duplicative development efforts on and beneath the surface. There will be environmental i1mpacts associated with reservoir development, 'but it :must proceed according to an approved unit.plan of development. Additionally, before undertakiJ)g any specific operations on State land, the unit operator must obtain the Division's approval ,of a unit plan of operations that must undergo extensive multi-agency review. The Division may condition its approval of a unit plan of operations and other permits with mitigation measures developed for the most recent Cook fulet Areawide lease sale in addition to those in the leases. Compliance with the mitigation measures will minimize, reduce or avoid adverse environmental impacts. Creating the TMC PA will help maximize oil and gas recovery, while minimizing negative impacts on other natural resources. This reduction in environmental impacts and conservation of hydrocarbon resources is in the public interest. 2. Promote the Prevention of Economic and Physical Waste Forming a participating area prevents economic and physical waste by eliminating redundant expenditures for a given level of production, and by increasing ultimate recovery with the adoption of a unified reservoir management plan. Marginally economic reserves, which otherwise would not be produced on a lease-by-Iease basis, can be produced from the TMC PA in combination with more productive leases. Facility consolidation lowers capital costs and promotes optimal reservoir management. Pressure maintenance and secondary recovery procedures are easier to design and achieve through joint, unitized efforts than would otherwise be possible. fu combination, these factors allow the unit operator to develop and produce less profitable areas of a reservoir in the interest of all parties, including the State. Reducing costs and environmental impacts through unitized operations will expedite development Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 8 ) ) of reserves and will promote greater ultimate recovery of oil and gas from the unit area. This may increase and extend the State's income stream from production taxes and royalties. Formation of the TMC P A will facilitate the equitable division of costs and allocation of the hydrocarbon shares, and provide for a diligent development plan that helps to maximize hydrocarbon recovery from the reservoir. Further, the formation of a participating area, which enables commingled production, facility sharing opportunities, and adoption of a unified reservoir management strategy, may allow for the development of economically marginal hydrocarbon accumulations. 3. Provide for the Protection of all Parties of Interest, Including the State Because hydrocarbon recovery will more likely be maximized under a unified plan, the TMC P A protects the economic interests of the State, CIRI, and the overriding royalty interest owners. Formation of the TMC P A advances the efficient evaluation and development of the hydrocarbon resources while minimizing impacts to the area's cultural, biological, and environmental resources. Formation of the TMC P A protects the economic interests of the working interest owners and royalty owners of a common reservoir. The approved production allocation schedule ensures an equitable allocation of revenue to the lessors commensurate with the value of their . leases. In addition, the redetermination procedures applicable to the TMC P A will protect the economic interests of all parties. The TMCP A will not diminish access to public and navigable waters beyond those limitations imposed by law or already contained in the oil and gas leases covered by the Agreement. The Agreement provides for future expansions and contractions of the participating area, as warranted by data obtained by exploration or otherwise. The TMC P A and the Agreement thereby protect the public interest, the rights of the parties, and the correlative rights of adjacent landowners. IV. Decision The Division reviewed the statutes, oil and gas unitization regulations, the TMC Unit Agreement, and materials supplied by Aurora in support of the Application. Formation of the TMC P A within the TMC Unit will promote the conservation of all natural resources, promote the prevention of economic and physical waste, and provide for the protection of all parties in interest including the State, as discussed above. The Application adequately and equitably protects the public interest, is in the State's best interest, and it meets the requirements of AS 38.05.180(p) and 11 AAC 83.303 (a) and (b). 1. Aurora requested that approval of the TMC P A be effective July 1, 2005 through January 31, 2007, which is consistent with the proposed term of the First POD.6 I approve the TMC PA effective July 1, 2005, subject to concurrent approval by CIR!. 6 Article 9.5 of the Agreement states: "The Proper Authority will establish the effective date of the initial Participating Area. That effective date shall be no later than the date of the first Sustained Unit Production." Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 9 ) ) 2. The TMC P A includes: a. 960.00 acres described in Exhibit C and depicted in Exhibit D, and b. all unitized substances in the Beluga Formation Sands between 3,530' MD and 4,605' MD in the TMC Unit 1 well within the boundary of the approved participating area. 3. DNR accepts Exhibits A, B, C, D, 0, H, and I to be true and correct as submitted; those exhibits are attached hereto as Attachments 1 through 7, respectively. 4. I approve the allocations of production to the tracts within the TMC P A set forth in Exhibits C and the allocation of TMC Unit expenses and TMC P A expenses set forth in Exhibits H and I, respectively. 5. The Division assigns Accounting Unit Code "TMOl" to report test production prior to the effective date of the TMC P A. Aurora shall submit operator reports for gas produced and vented from the Three Mile Creek Unit 1 well that reference Accounting Unit Code TMOl and all test production shall be allocated to Tract 4, ADL 388233. , 6. The Division assigns Accounting Unit Code "TMTM" to the TMC P A for' royalty accounting purposes. All operator and royalty reports must reference this Accounting Unit Code for all gas produced after the effective date of the TMC P A. 7. The Unit Operator shall submit copies of the Facility Report of Produced Gas Disposition (AOOCC Form 10-422) that specify the volume of gas produced from the TMC Unit that is vented, flared, sold, or otherwise disposed. 8. I approve the First POD, as set forth in Exhibit 0, for the period from July 1, 2005 through January 31, 2007. fu accordance with Article 8.1.1 of the Agreement and State regulation 11 AAC 83.343, the unit operator shall submit an annual report to CIRI and the Division on January 31, 2006. The annual report must describe the extent to which the unit operator fulfilled the requirements of the First POD, and must include an explanation of any deviation or noncompliance with the approved plan. It must also provide detailed plans for the term of the plan and long-range development plans for the TMCPA. 9. In accordance with the redetermination procedures outlined in Exhibit 0-1, by August 1, 2006, Aurora shall apply to the Division and CIRI to revise the TMC P A boundary based on the technical data available through July 1, 2006. The application must include detailed plans for the remaining term of the First POD and long-range development plans for the revised TMC P A. 10. If all parties agree that the data available through July 1, 2006 supports a continuation of the TMC PA boundary approved by this Finding and Decision, Aurora's proposed Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 10 '") ) Second Plan of Development will be due on November 2, 2006, 90 days before the First POD expires. The Second POD must describe the extent to which the unit operator fulfilled the requirements of the First POD, and must include an explanation of any deviation or noncompliance with the approved plan. It must also provide detailed plans for the term of the Second POD and long-range development plans for the TMC P A. A person affected by this decision may appeal it, in accordance with 11 AAC 02. Any appeal must be received within 20 calendar days after the date of "issuance" of this decision, as defined in 11 AAC 02.040 (c) and (d), and may be mailed or delivered to Thomas E. Irwin, Commissioner, Department of Natural Resources, 550 W. 7th Avenue, Suite 1400, Anchorage, Alaska 99501; faxed to 1-907-269-8918; or sent by electronic mail to dnr appeals@dnr.state.ak.us. This decision takes effect immediately. If no appeal is filed by the appeal deadline, this decision becomes a final administrative order and decision of the department on the 31 st day after issuance. An eligible person must first appeal this decision in accordance with 11 AAC 02 before appealing this decision to Superior Court. A copy of 11 AAC 02 may be obtained from any regional information office of the Department of Natural Resources. ~ Mark D Myers, Director Division of Oil and Gas 7/z-~s , Date cc: Thomas E. Irwin, DNR Commissioner Teresa Ressler, CIRI John Norman, Chairman AOGCC Jeff Landry, Assistant Attorney General Attachments: Attachment 1. Exhibit A, Unit Tracts and Exhibit F, Unit Tract Expense Participation Attachment 2. Exhibit B, Map of the Three Mile Creek Unit Boundary Attachment 3. Exhibit C, PA Tract Production Participation and Exhibit E, . P A Tract Expense Participation Attachment 4. Exhibit D, Map of the Three Mile Creek P A Attachment 5. Exhibit G, Three Mile Creek Unit First Plan of Development Attachment 6. Exhibit G-l, Three Mile Creek P A Redetermination Procedures Attachment 7. Exhibit H, Contractual Ownership of the Three Mile Creek Unit Attachment 8. Exhibit I, Contractual Ownership of the Three Mile Creek P A Attachment 9. Exhibit J, Map of the Three Mile Creek Unit Contractual Ownership Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 11 Attachment 1 Three Mile Exhibit Exhibit F, Unit T North America. Inc. * 9: All; Section 10: All. 640.00 more or less, ~4: EII2, SW1I4, EII2NWl/4; 560.00 containing approximately 560.00 acres, more or less Those portions more particularly described as protracted: 1.46% North America. Inc. * 1.50% Marathon Oil Corporation 1.46% Inc. * 160.00 ± Section 26: Unsurveyed, All; =3 Section 27: Unsurveyed, EII2, SWl/4, EII2NWI/4; I containing approximately 2,960.00 acres, more or less t== Segment 2 I sectiO~ 40.00 ~ Section 320.00 containing approxirnstely 360.00 acres, more or less ~imatelY3,320.00 acres, more or less. =F= I 7/18/2005 Page 1 of 2 3MileExhibits27 June05dnr.xls3 Mile Exhibits A and F Attachment 1 Three Mile Creek Unit Agreement Exhibit A, Unit Tracts and Exhibit F, Unit Tract Expense Participation Section 22: Unsurveyed, SWll4; = Section 27: Unsurveyed, WII2NWl/4; containing approximately 240.00 acres, more or less tract contains approximately 520.00 acres, more or less. 120.00 560.00 480.00 80.00 containing approximately 520.00 acres, more or less. ~ ~ Totai Unit Acreage = =t ~URORA has reservations about the validity of this interest, in an abundance of caution and to recognize the ONR's regulations regarding . otoool. AURORA elects to identify this interest validity issue later. =1 1 I 7/18/2005 Page 2 of2 3MileExhibits27 June05dnr.xls3 Mile Exhibits A and F Attachment 3 Three Mile Three Mile Unit Agreement Participating Area Exhibit C, PA Tract Exhibit Section 27: Unsurveyed, SE1I4; Section 34: Unsurveyed, El/2, El12Wll2; Section 35: Unsurveyed, WlI2WII2; containing approximately 840.00 acres, more or less this interest, in an abundance of caution and to recognize the DNR's regulations regarding now while deferrin to address the validit issue later. 7/18/2005 Page 1 of 1 3MileExhibits27 June05dnr.xls3 Mile Exhibits C and E Attachment 5 ) ) Exhibit G to the Three Mile Creek Unit Agreement First Plan of Development A. DURATION: This plan shall be effective from July 1, 2005, through January 31, 2007, and supersedes the remaining term of the Initial Plan of Exploration. B. ACTIVITY DURING THE INITIAL PLAN OF EXPLORTION The Three Mile Creek Unit No.1 Well was drilled during December 2004 and four zones of interest were perforated and drill-stem tested in the Tyonek and Beluga formation reservoirs within January 2005. The lower two zones were non-commercial and plugged back, and a completion packer and tubing were run above the shallower two zones, which tested at a combined rate of about 2,000 mcf/day. The Nabors 129 rig was released in late January. The Unit Operator submitted an application for a proposed Three Mile Creek Participating Area. C. THE THREE MILE CREEK PARTICIPATING AREA 1) Drilline Operations Testing in the Three Mile Creek No.1 Well will resume with another rig in the spring of 2005. At that time, several additional shallower Beluga sandstone zones will be perforated and tested, and packers and tubing will likely be run for either a dual or selective completion to isolate some of the shallower zones from the deeper zones, due to ini~ial reservoir pressure differentials between the multiple zones. AURORA plans to drill up to two (2) appraisal/development wells within the Three Mile Creek Participating Area during CY 2005. Subject to environmental reviews and permits being sought, two development drilling pads will be constructed to the north and south of the existing well pad (TMC Central Pad). The Three Mile Creek Unit No.2 Well will be drilled from the northern pad (TMC North Pad) then the Three Mile Creek Unit No.3 Well will be drilled from the southern pad (TMC South Pad). The Three Mile Creek Unit Nos. 4 and 5 Wells, planned for CY-2006, will be sited after a review of the results of the subsequent drilling. 2) Other Development Activities: AURORA plans to construct a production facility on the TMC Central Pad for water separation from and compression, and dehydration of the sales gas, and, assuming successful development drilling, minor satellite facilities will be installed on the TMC North and South pads. A 6-inch gas gathering pipeline will connect the TMC Central Pad facility to AURORA's Lone Creek gas gathering Attachment 5 Three Mile Creek Unit Agreement Exhibit G, First Plan of Development Page 2 of3 ) ') pipeline, approximately 5 miles to the south. Pipeline construction will be facilitated by and will follow a pre-existing gravel road, generally known as the Superior Road. 3) Production: The initial production from the Three Mile Creek Unit is expected to occur on or before July, 1, 2005. The initial production from the Three Mile Creek No.1 Well will be from the Beluga formation. AURORA expects to be producing from up to 3 wells by the end of CY 2005. The Three Mile Creek Unit No.1 Well will be placed onto production and initial rates will slowly be increased to approximately 5MMcfd until cumulative production meets or exceeds 300MMcf at which time the well will be shut-in. Pressures will be taken followed by a 48 hour buildup with a surface pressure check recorder to confirm surface and calculate BH pressures. It is our anticipation no pressure loss of greater than 1 psi per hour loss will occur. Favorable reservoir pressure data will result in the Three Mile Creek Unit No.2 Well being prosecuted. 4) Well Data: Drilling - 0 Producing- 0 Shut-in Pending Facility Installation- 1 Suspended- 0 Abandoned- 0 D. EXPLORATION ACTNITIES OUTSIDE OF THE THREE MILE CREEK PARTICIPATING AREA 1) If the Working Interest Owners decide not to drill a 2nd Exploration Well: a) the Unit Operator shall notify DNR and CIRI in writing of the no-drill decision by January 31, 2006; b) Tract 6 and Tract 7 will automatically contract out of the Three Mile Creek Unit; and c) the Working Interest Owners shall pay the State of Alaska a payment equal to $ 16/acre x contracted acreage. 2) By January 31, 2007, the Unit Operator must drill a 2nd Exploration Well a) to the base of the Tsuga 2-4 interval or the stratigraphic equivalent of the 4,300' TVD marker, as seen in the Three Mile Creek State-l Well, whichever is deeper; b) to a bottom hole location within Tract 6, ADL 388232; c) log the well (GR or SP, Resistivity and NeutronlDensity or Porosity: appropriate triple combo log); and d) complete, suspend, or abandon the well. Attachment 5 ) Three Mile Creek Unit Agreement Exhibit G, First Plan of Development Page 3 of 3 ) 3) If the Working Interest Owners fail to drill the 2nd Exploration Well, as described above, by January 31, 2007: a) Tract 6 and Tract 7 will automatically contract out of the Three Mile Creek Unit; and b) the Working Interest Owners shall pay the State of Alaska a payment equal to $24/acre x contraction acreage. E. General Provisions: 1) After fulfilling all of the obligations in this First POD, any tract not having a portion of the lease included in an approved participating area by January 31, 2007, contracts out of the Unit Area, unless there is a well certified capable of producing in paying quantities located on that tract. 2) If the Three Mile Creek Unit terminates for failure to fulfill any of the commitments in this First POD, the Working Interest Owners will automatically surrender all expired State acreage within the Unit Area, effective the day the Unit terminates. 3) If acreage contracts out of the Three Mile Creek Unit area for failure to fulfill any of the commitments in this First POD, the Working Interest Owners shall automatically surrender all expired State acreage that contracts out of the Three Mile Creek Unit, effective the day the Unit contracts. The Commissioner and the President may delay contraction of the unit area if warranted. 4) The Working Interest Owners waive the extension provision of 11 AAC 83.140 and Article 16.2 of the Three Mile Creek Unit Agreement, and the notice and hearing provisions of 11 AAC 83.374 applicable to default and/or termination of the Three Mile Creek Unit. 5) AURORA Gas, LLC, designated as Unit Operator, reserves the right to modify this Plan of Development if economic or geological factors warrant; however, such modifications or operations are not to be commenced without prior consent of the DNR and CIRI. Attachment 6 ') EXHIBIT G-l to the Three Mile Creek Unit Agreement Revising the Three Mile Creek Participating Area The Three Mile Creek Participating Area (TMC PA) described in Exhibit C may be revised in accordance with the following provisions if well and/or production data derived from the TMC P A wells yield evidence to indicate and support a revision of a previously established and approved Participating Area ("Former PA"): 1.0 Revisions of the TMC P A require approval by the President and the Commissioner. 1.1 Proposal by Unit Operator- By August 1, 2006, the Unit Operator shall prepare and submit to the President and the Commissioner an application for expansion/contraction of TMC PA (the "Proposed PA") based upon analysis of the data available through July 1, 2006. No application shall be necessary if CIRI and the DNR agree that the aforementioned data supports a continuation of the Former P A. The Proposed P A will include lands then regarded as reasonably estimated to be producing or contributing to production in paying quantities and exclude lands reasonably proven to be incapable of contributing to production in paying quantities, provided, however, no Former P A lands shall be excluded from a Proposed P A because of depletion of Unitized Substances. 1 . 1.2 Review and Approval of Proposed P A 1.2.1 The Unit Operator shall supply all appropriate supporting information to allow CIRI and the DNR to evaluate whether the Former P A should be expanded, contracted, or remain the same. 1.2.2 Within ten days after receipt of the Proposed PA and supporting data and analysis, CIRI and the DNR shall give the Unit Operator written notice as to whether the submission is complete. If CIRI and the DNR determine the submission to be incomplete, CIRI and the DNR shall provide the Unit Operator with a written notice of incompleteness, specifying the deficiencies in the submission. The Unit Operator shall submit additional data and analysis until CIRI and the DNR determine the submission to be complete. Nothing herein shall limit the rights of CIRI and the DNR under applicable statutes, regulations, leases and agreements, including Article 3.10 of the Three Mile Creek Unit Agreement, to request that the Unit Operator provide whatever data and interpretations the agencies deem necessary to fulfill their respective responsibilities. 1.2.3 The President and the Commissioner shall approve the Proposed P A or an Alternative Participation Area (the Revised P A). The DNR shall base its 1 Article 9.6 of the Three Mile Creek Unit Agreement states "Land in a Participating Area shall remain in that Participating Area even if its Unitized Substances are depleted." Attachment 6 Three Mile Creek Unit Agreement Exhibit 0-1, Three Mile Creek P A Redetermination Procedures Page 2 of 3 ) ) recommendations and decision on the criteria provided in the applicable statues and regulations, including but not limited to 11 AAC 83.303. CIRI will base its decisions on available scientific data and analysis. 1.3 Effective Date. Following approval by the Commissioner and the President, the First Revised P A shall be effective with respect to all parties retroactive to the first day of the commencement of production from the Former P A. 1.4 State Equalization Procedure. The Unit Operator and Working Interest Owners shall submit revised Operator and Royalty Reports for each month of production between the commencement of production and approval of the Revised P A. Debits and credits owed to or by the State shall be made to the State or the Working Interest Owners, as applicable, and calculated in the same manner as is required for payment for the royalty interests to the State in the Unitized Substances being produced from the TMC P A. 1.4.1 State Lease Provision 37 ". . . The amount of all royalty in value payments which are not paid when due under this lease or the amount which is subsequently determined to be due to the state or the lessee as the result of a redetermination will bear interest from the last federal banking day of the calendar month following the month in which the oil, gas, or associated substances were produced, until the obligation is paid in full. Interest shall accrue at the rate provided in AS 38.05.135(d) or as may later be amended.....". 1.4.2 State Statute AS 38.05.135(d) "If a royalty or net profit share payment to which the state is entitled under AS 38.05.135 - 38.05.181 is not paid or is underpaid when it becomes due under (c) of this section, the unpaid amount of the royalty or net profit share payment bears interest in a calendar quarter at the rate of five percentage points above the annual rate charged member banks for advances by the 12th Federal Reserve District as of the first day of that calendar quarter, or at the annual rate of 11 percent, whichever is greater, compounded quarterly as of the last day of that quarter." 1.5 CIRI Equalization Procedure. The Unit Operator and Working Interest Owners shall submit revised Operator and Royalty Reports for each month of production between the commencement of production and the approval date of the Revised P A. Debits and credits owed to or by CIRI shall be made to CIRI or the Working Interest Owners, as applicable, and calculated in the same manner as is required for payment for the royalty interests to CIRI in the Unitized Substances being produced from the Three Mile Creek Participating Area. Attachment 6 Three Mile Creek Unit Agreement Exhibit G-l, Three Mile Creek P A Redetermination Procedures Page 3 of 3 ') ) 1.5.1 CIRI Lease Provision 35 (C-61394), Line 15 and Provision 25, Line 10 (C-61502) " ...The amount of all royalty in value payments which are not paid when due under this Lease or which are subsequently determined to be due as the result of a redetermination will bear interest from the date the obligation accrued, until it is paid in full, at the Default Rate. . . .". 1.5.2 Default Rate is defined in CIRI Lease Provision 32.(k) (C-61394) and Provision 40 (t) (C-61502) as follows: "...a floating per annum rate equal to two percent (2%) above prime rate as announced by the National Bank of Alaska from time to time. However, in no event shall the Default Rate exceed the maximum interest rate permitted by law." 1.6 Overriding Royalty Interest Equalization Procedure. Debits and credits owed to or by the Overriding Royalty Interests shall be made to the Overriding Royalty Interest or the Working Interest Owners, as applicable, and calculated in the same manner as is required for payment to the Overriding Royalty Interests in the Unitized Substances being produced from the TMC P A. 1.7 After the first revision of the TMC PA in 2006, the Unit Operator, the DNR,·and CIRI shall review the drilling schedule and production data from the TMC:PA in connection with the annual review of the Unit Plan of Development. Any of the parties may propose an expansion or contraction of the TMC P A as appropriate following the procedures outlined above. The Proper Authority will establish the effective date of each later revision of the TMC PA. tmc pa redeterminationproceduresl8july05.doc Attachment 7 Three Mile Creek Unit Agreement Exhibit H, Contractual Ownership of the Three Mile Creek Unit 7/19/2005 Page 1 of2 3MileExhibits27 June05dnr.xls3 Mile Exhibit H Three Mile Creek Unit Agreement Exhibit H, Contractual Ownership of the Three Attachment 7 7/19/2005 Page 2of2 3MileExhibits27 June05dnr.xls3 Mile Exhibit H Attachment 8 Exhibit I, Contractual Ownership of the Three Miie Creek Participating Area 7/19/2005 3MileExhibits27 June05dnr.xls3 Miie Exhibit i Senate endorses national energy bill - 07/29/2005 Page 1 of N='WS 3U__ --- - - N July 29, 2005 --- Vol. 11, No. 64 July 2005 ".,.,,,,,. ..............",.. .,...,...... ",............................... .................................,............ .........................................................." Senate endorses national energy bill A nearly three-quarters majority of the U.S. Senate approved national energy legislation today. Passage of a compromise version of H.R. 6 in a 74-26 vote followed light debate and an unsuccessful last-ditch effort by Democratic leaders to derail the legislation with a budget-rules challenge. However, some Senate Democrats hailed the bipartisan package as a triumph of "statesmanship" for the two senators from New Mexico, Sen. Pete Domenici, a Republican and chairman of the Senate Energy and Natural Resources Committee, and Sen. Jeff Bingaman, a Democrat and ranking member of the same panel. Answering criticism of the energy bill, Domenici said, "It is impossible to legislate or dictate to the American people that they should change their car-buying habits so they will buy smaller cars. "But the provisions in H.R. 6 will effect a change in those habits in short order," he predicted. The Senate vote followed passage of the bill by the U.S. House of Representatives July 28. The bill is now headed to the Oval Office. Once President Bush signs the measure, it will become law. Bush earlier asked Congress to send national energy policy legislation to his desk by Aug. 1. Aurora tests successful west side gas wells Aurora Gas is in the middle of a busy drilling season on the west side of Cook Inlet, company officials told Petroleum News in late July. The company has completed testing the Three Mile Creek No.1 well, which flowed 5 million cubic feet per day from several Beluga sand intervals. Gathering lines and production facilities are nearly complete at Three Mile Creek, and that field should be ready to go into production in early August, said Aurora's vice president of operations and engineer, Ed Jones. Forest Oil has a 30 percent interest in Three Mile Creek, which Aurora operates. Aurora is 100 percent owner at its other fields. From Three Mile Creek Aurora moved the rig to the Moquawkie field, Jones said, "and drilled an offset to our old re-entry No.1 well." The Moquawkie No.3 was drilled to a depth of 2,560 feet and completed in the Tyonek and Beluga sands, with combined flow rates of 5.5 million cf/d. This well is on the same pad as the earlier well, and will be on production by Aug. 1. Aurora then moved the rig to the Lone Creek field and on July 3 spudded the Lone Creek No.3, an offset to the Lone Creek No.1. The well was drilled to 3,025 feet. The company described the well as its best to date: it flowed at 16.4 million cfld "from several upper Tyonek sands, with several apparently productive sands yet untested." Aurora said the well would be tied in with a short gathering line to the central production facility at the Lone Creek No.1 well pad. http://www.petroleumnews.comlnbbigarchpop/11-64.html 7 /29/200~ 7/29/200: Page 2 of http://www.petroleumnews.comlnbbigarchpop/11-64.html Petroleum News· Phone: 1·907522·9469· Fax: 1·907522·9583 ç.i.r.çºJ..ª.tiºn@?.P-g.trºJ.g.\!mN.~.w.~.!çºm. ... Þ.t.tp..;.!I.W.'W..~.!pg.t.r.ºJ.g.µ.mºgW.~.~.çº.m ... s....JJ.....ltS....C....J.t.l...ltE. "'''"'!'''.,'W,,.''',,,.v.,','''''''''''.......,W.WJ''''''''''''''W..'''''~,,~..,_~'''...,''^''''N'''''''''~~,.''"'~.ffl"""'M",...''''',.,w..'''''~......."www~>.ww''''''''''''·''''''''''''~,''',.,'','''.,.'''',..,.'''''''''''''''''':YM'''".,·''''''",/y,.,W".",~."""""""",,,,I'ffl''''''''''''~_·IWo~'''''''''''':. '. ,. ~ ._.,..,.,""'.......·"""""""'''''MMy''''"''''''/y'',.,.,.,''''''''',.,y^WNm'M· ) Senate endorses national energy bill - 07/29/2005 See Aurora Gas story ih ~ ly 31 issue of Petroleum News. ) ) THREE MILE CREEK UNIT APPROVAL OF AN APPLICATION TO FORM THE THREE MILE CREEK P ARTICIP A TING AREA FINDINGS AND DECISION OF THE DIRECTOR, DIVISION OF OIL AND GAS UNDER A DELEGATION OF AUTHORITY FROM THE COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES, STATE OF ALASKA July 29,2005 ') ) TABLE OF CONTENTS I. APPLICATION FOR THE FORMATION OF THE TMC P A ......................................................................1 II. ANALYSIS OF THE APPLICATION FOR THE FORMATION OF THE TMC PA.................................2 1. PRIOR EXPLORATION AND DEVELOPMENT ACTIVITIES AND THE GEOLOGICAL AND ENGINEERING CHARACTERISTICS OF THE RESERVOIR. .................. ............... .... .......................... ........................ .... ........... .....2 2. THE ApPLICANTS' PLAN OF DEVELOPMENT.......... .............................................. ........................................... .....4 3. THE ENVIR.ONMENT AL COSTS AND BENEFITS.... .................................................................................... ........ ..... 5 4. THE ECONOMIC COSTS AND BENEFITS TO THE STATE ........................................................................................ 6 5. OTHER RELEVANT FACTORS ........ .............. .......... ............... ..................................... .................................... ...... 7 III. FIN"D IN GS......... ....... ..... ................... ......... ............. ... ..... .......... .................. .......... ............ ........ .............. ......... .....8 1. PROMOTE THE CONSERVATION OF ALL NATURAL RESOURCES........................................................................... 8 2. PROMOTE THE PREVENTION OF ECONOMIC AND PHYSICAL WASTE.................................................................... 8 3. PROVIDE FOR THE PROTECTION OF ALL PARTIES OF INTEREST, INCLUDING THE STATE ...................................... 9 IV . DE CIS ION . .............. ........ ... .... ..... .... ........ ..... ... ..... ...... ... ........ ................. .............................. ....... ................... ..... 9 v. ATTACHMENTS Attachment 1. Exhibit A, Unit Tracts and Exhibit F, Unit Tract Expense Participation Attachment 2. Exhibit B, Map of the Three Mile Creek Unit Boundary Attachment 3. Exhibit C, PA Tract Production Participation and Exhibit E, PA Tract Expense PaFticipatiori Attachment 4. Exhibit D, Map of the Three Mile Creek P A Attachment 5. Exhibit G, Three Mile Creek Unit First Plan of Development Attachment 6. Exhibit G-l, Three Mile Creek P A Redetermination Procedures Attachment 7. Exhibit H, Contractual Ownership of the Three Mile Creek Unit Attachment 8. Exhibit I, Contractual Ownership of the Three Mile Creek P A Attachment 9. Exhibit J, Map of the Three Mile Creek Unit Contractual Ownership ) ) I. Application for the Formation of the TMC PA On June 6, 2005, Aurora Gas LLC (Aurora), the unit operator, submitted an application to form the Three Mile Creek Participating Area (TMC P A) within the Three Mile Creek Unit (TMC Unit) (the Application). The TMC Unit is located on the West side of Cook Inlet, about four miles west of the Beluga River Unit and seven miles north of the village of Tyonek. The TMC Unit encompasses approximately 8,080 acres within seven oil and gas leases. Approximately 5,520 acres lie within four State of Alaska leases (State Leases) and Cook Inlet Region, Inc. (CIRI) is the lessor of three oil and gas leases (COO Leases) that encompass the remaining 2,560 acres of the TMC Unit area. The State of Alaska, Department of Natural Resources, Division of Oil and Gas (the State, the DNR or the Division, as appropriate) and COO jointly administer the Three Mile Creek Unit Agreement (the Agreement). Aurora submitted the Application on behalf of itself and Forest Oil Corporation (Forest), the TMC Unit working interest owners (the Working Interest Owners or Applicants, as appropriate). Aurora submitted the Application in accordance with 11 AAC 83.351 and Article 9 of the Agreement. The Application included the following exhibits to the Agreement: Exhibit A, a schedule describing the TMC Unit; Exhibit B, a map of the TMC Unit; Exhibit C, a schedule allocating unitized substances within the TMC P A; Exhibit D, a map of the TMC P A; Exhibit G, the Unit Plan of Development (First POD); and Exhibit G-l, TMCPA redetermination procedures. In addition, Aurora submitted Exhibit H allocating unit expenses: .and Exhibit:l allocating participating area expenses in accordance with the contractual ownership interests agreed to between Aurora and Forest. The proposed TMC P A contains portions of three leases and encompasses ..960 acres (approximately 12% of the TMC Unit area), including 840 acres within one State Lease, ADL 388233, and 120 acres within the two CIRI Leases, C-061394 and C-061502. Aurora is the only working interest owner in the leases proposed for inclusion in the TMC P A, although Aurora has a contractual agreement to transfer 30% working interest ownership to Forest. Mobil Exploration and Producing North America, Inc. holds 1.46% overriding royalty interest in all three leases included in the TMC PA and Marathon Oil Corporation has 1.5% overriding royalty interest in C-061502. The State retains a 12.5% royalty on production from the State Lease and the three CIRI Leases specify a 162/3% royalty rate. For the reasons set forth in this Findings and Decision, the Division approves the formation of the TMC PA effective July 1, 2005, subject to concurrent approval by CIRI. Supporting geological, geophysical, and engineering data provided by Aurora and otherwise available to the Division justifies the formation of the TMC P A. The data indicate that the Beluga Formation within the proposed TMC PAis capable of producing or contributing to the production of gas in paying quantities. 1 The TMC PAis stratigraphically limited to the Beluga Formation Sands between 3,530' and 4,605' measured depth (MD) in the TMC Unit 1 well within the area 1 Paying Quantities is defined in 11 AAC 83.395(4) as follows: "paying quantities" means quantities sufficient to yield a return in excess of operating, costs, even if drilling and equipment costs may never be repaid and the undertaking considered as a whole may ultimately result in a loss; quantities are insufficient to yield a return in excess of operating costs unless those quantities, not considering the costs of transportation and marketing, will produce sufficient revenue to induce a prudent operator to produce those quantities. Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 1 ) ) described in Exhibit C and depicted on Exhibit D to the Agreement. The Division also approves the allocation of gas produced from the TMC PA to the individual leases on a surface acreage basis and the working interest owners shall pay royalties on that production based on the infonnation set forth in Exhibit C. Therefore, 87.5% of production from the TMC PA will be allocated to the State Lease and 12.5% to the CIRI Leases and Aurora will be solely responsible for paying royalties to the State and COO. Unit expenses and TMC P A expenses, excluding royalties, will also be allocated on a surface acreage basis, but the expenses will be divided between Aurora and Forest based on the Working Iinterest Owners' contractual ownership set forth on Exhibit H and Exhibit I, respectively. The Division's evaluation of the Application is set out in this Findings and Decision. II. Analysis of the Application for the Formation of the TMC P A The Commissioner of DNR (the Commissioner) reviews unit-related applications, including the fonnation of participating areas, under AS 38.05. 180(p) and 11 AAC 83.301-11 AAC 83.395. The State statute and the DNR regulations set out the standards and criteria for formation of a participating area. The Commissioner or his designee2 may approve the formation of a participating area if he determines it is necessary or advisable in the public interest3. The Division's review of the Application is based on the criteria set out in 11 AAC 83.303 (a) and :(b). The Division's evaluation of the Application under the six factors set out in .} l'AAG 83.303" (b) is set out directly below, followed by the Division's findings under the subsection (a) criteria: ': and the Division's decision approving the Application. !" 1. Prior Exploration and Development Activities and the Geological and Engineering Characteristics of the Reservoir Technical data submitted in support of the Application included the following: type log, structural cross-section, stratigraphic correlation, log analysis, FMI analysis, sidewall core analysis, seismic sections, and structure maps. The Division will hold these data confidential under AS 38.05.035(a)(9)(C) and 11 AAC 96.220. Cook Inlet area geology maps from the 1960s and 1970s identified the regional fault and anticlinal trend that is the structural basis of the TMC Unit. The Bruin Bay fault is the main structural feature in the unit area. The Moquawkie Anticline, a prominent anticlinal trend with an axial trace paralleling the fault, lies adjacent to and east of the Bruin Bay fault. Aurora identified two structural highs along the anticline in the TMC Unit area, the Three Mile Creek prospect (south) and the Olson Creek prospect (north), which are separated by a structural saddle. Aurora's objective in the Initial Plan of Exploration (Initial POE) was to delineate and test gas sands in the 2 By memorandum dated S~ptember 30, 1999, the Commissioner approved a revision of Department Order 003 that delegated this authority to the Director of the Division of Oil and Gas. 3 The proposed unit action must be necessary or advisable in the public interest: "To conserve the natural resources of all or part of an oil or gas pool, field, or like area, the lessees and their representatives may unite with each other, or jointly or separately with others, in collectively adopting or operating under a cooperative or unit plan of development or operation of the pool, field, or like area, or part of it, when detennined and certified by the commissioner to be necessary or advisable in the public interest." AS 38.05.180(p). Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 2 ) ,) Beluga Formation above 4,300 feet true vertical depth (TVD) within the two prospect areas. The Tertiary (Miocene) Beluga Formation is present in the subsurface over much of the upper Cook Inlet Basin. It is well exposed in outcrops on the southern Kenai Peninsula near Homer and along the Beluga River. The Beluga Formation thins or is truncated locally on structural highs on the northeastern side of the Cook Inlet Basin. The Beluga Formation consists of interbedded, poorly sorted sandstone, siltstone, claystone, sub-bituIIÚnous coal and ash beds, with locally abundant pebbly sandstone and pebble conglomerate. The depositional environment for the Beluga Formation is interpreted as shallow braided streams. The Beluga Formation is 4,150 feet thick at its subsurface type section in the SOCAL Beluga River #1 well (now known as BRU #212-35), located east of the TMC Unit, within the Beluga River Unit. In the nearby Beluga River field, the Beluga Formation reservoir has an average porosity of 24%, and contains over 100 feet of net pay. In addition to the Beluga River field, the Beluga Formation also produced gas at Swanson River, Cannery Loop, Kenai, Lewis River, Nicolai Creek, North Cook Inlet, Stump Lake, Beaver Creek, and Theodore River fields. The Three Mile Creek Reservoir is constrained by the Moquawkie anticline to the west and prior exploration wells drilled to the southeast and east. The southeast boundary is defined by the Three Mile Creek State #1 well, drilled by Superior Oil Company in October 1967, which is located within Tract 4 of the TMC Unit. Drilled to a total depth of 13,773 feet to explore for oil, Superior foùnd indications of gas in the Beluga Formation, but abandoned the welLwithbut testing. to determine if the well could produce hydrocarbons in paying quantities. , ' . The North Tyonek State #1 well, drilled by Phillips Petroleum Company iit 1973, is located just outside the eastern boundary of TMC Unit. Phillips drilled to a total depth of 6,063 feet and tested several intervals in the well, but abandoned the well because it could not produce gas in paying quantities. The State and CmI approved the formation of the TMC Unit effective January 31, 2004, for the exploration and development of two natural gas prospects identified within the unit area, the Three Mile Creek Prospect and the Olson Creek Prospect. The 3-year Initial POE contained plans to drill an exploration well in the Three Mile Creek Prospect, acquire new seismic data over the unit area within the first two years, and drill a second exploration well in the Olson Creek Prospect in the third year. In 2004, Aurora acquired and evaluated 44 IIÚles of new 2D seismic data. In December 2004, Aurora drilled the TMC Unit 1 well to 8,185' MD, 8,015.6' TVD. Aurora tested several intervals in the Tyonek and Beluga Formations in the well. The type log for the TMC Unit 1 well defines the stratigraphic interval of the productive Beluga Formation in the TMC PA. The top of the Beluga Formation occurs at 3,530' MD and the base of the interval occurs at 4,605' MD in the TMC Unit 1 well. The well test produced gas at a rate of approximately 2 IIÚllion cubic feet per day (MMCFD) from the Tsuga 2-6 interval in the Beluga Formation. Aurora mapped the depth of the lowest known gas for each productive interval based on its interpretation of seismic and well control data. The TMC P A includes all 40-acre aliquot parts4 that are 4 11 AAC 88.185(11) "legal subdivision" means an aliquot part of a section of land according to the public land rectangular survey system, not Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 3 ') ) intercepted by the 4,000' depth contour line depicted on Aurora's Tsuga 2-6 depth structure map. The Division cannot disclose the details of the confidential data, but the well and geophysical data provided in support of the Application, and otherwise available to DNR, indicate that the land proposed for inclusion in the TMC PAis known or reasonably estimated to be capable of producing or contributing to production of Unitized Substances in Paying Quantities from the Three Mile Creek Reservoir. The Division's evaluation of the subsurface geology supports the formation of the TMC P A to include the lands described in Exhibit C and depicted in Exhibit D to the Agreement (Attachments 1 and 2 to this decision). The Applicants' prior exploration activities and the geological and engineering characteristics of the TMC P A support approval of the Application under 11 AAC 83.303(b)(2) and (3). 2. The Applicants' Plan of Development Aurora proposed that the First POD be effective July 1,2005 through January 31, 2007, which supersedes the remaining term of the Initial POE. In the Initial POE, Aurora committed to drill an exploration well within the Three Mile Creek Prospect and acquire additional seismic data over the unit area by January 31, 2006, and form a participating area and drill a second exploration well by January 31, 2007. Aurora fulfilled the first three requirements, and the First POD incorporates the remaining exploration commitment contained in the Initial POE. The First POD includes plans to develop the reserves ,underlying the TMO'PA and to explore the unit area outside of the participating area. Aurora will construct a production facility on the Central Pad for water separation, compression, and dehydration 'of the produced gas. Aurora will install a 6-inch gathering line to ship pipeline quality gas from the Central Pad approximately five miles south to Aurora's Lone Creek pipeline. Sustained production from the TMC PAis scheduled to start in July 2005. Aurora plans to slowly increase the production rate from the TMC Unit 1 well to approximately 5 MMCFD. When cumulative production from the TMC Unit 1 well reaches 300 MMCFD Aurora will shut-in the well to perform a pressure build-up test. If the reservoir pressure test is favorable, Aurora will proceed with further drilling to delineate the TMC PA. The First POD includes plans to install two additional development drilling pads north and south of the Central Pad and drill four delineation/development wells. Aurora plans to drill two wells in 2005, TMC Unit 2 well from the North Pad and TMC Unit 3 well from the South Pad. Data from the first three wells will determine the bottom-hole locations for two additional wells. Aurora anticipates drilling the TMC Unit 4 well from the North Pad and the TMC Unit 5 well from the South Pad in 2006. Primary gas treatment facilities may be located on the North and South Pads with gathering lines installed to ship the gas to the Central Pad where it will be processed for sale. smaller than one-quarter of one-quarter of one section of land, containing approximately 40 acres; where a section of land contains section lots, "legal subdivision" also means those section lots; "legal subdivision" also means a protracted legal subdivision according to any protracted public land rectangular survey prepared by the division or Bureau of Land Management of the Department of the Interior, and made available to prospective applicants for leases; Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 4 ) ) 11 AAC 83.351 (a) states "[T]the participating area may include only land reasonably known to be underlain by hydrocarbons and known or reasonably estimated through use of geological, geophysical, or engineering data to be capable of producing or contributing to production of hydrocarbons in paying quantities." The Division staff believes there is insufficient data to reliably map the Three Mile Creek Reservoir or to judge with any certainty what acreage will contribute to production in paying quantities. Aurora has shown however, that all of the acreage in the proposed TMC P A may fulfill the paying quantities requirement and the activities outlined in the First POD will provide additional data to evaluate Aurora's interpretation of the reservoir. Additional data obtained in the future may require revising the TMC PA boundary. By January 31, 2006, the Unit Operator shall notify the DNR and CIRI if the Working Interest Owners decide not to drill a 2nd Exploration Well in the Olson Creek Prospect, and if so, Tracts 6 and 7 will automatically contract out of the unit and the Working Interest Owners shall pay the State an amount equal to $16 per acre contracted.. If, by January 31, 2006, the Working Interest Owners commit to drill an exploration well in the Olson Creek Prospect, the Unit Operator shall, by January 31, 2007, 1) drill a 2nd Exploration Well to the base of the Tsuga 2-4 interval or the stratigraphic equivalent of the 4,300' TVD marker, as seen in the Three Mile Creek State-l Well, whichever is deeper to a bottom hole location within Tract 6, ADL 388232; 2) log the well (OR or SP, Resistivity and NeutronlDensity or Porosity: appropriate triple combo log); and 3) complete, suspend, or abandon the well. If the Unit Operator fails to drill the 2nd Exploration Well, as described above, by January 31, 2007, then 1) Tract 6 and Tract Twill automatically contract out of the Three Mile Creek Unit; and 2) the Working Interest -Owners shall pay the State an amount equal to $24 per acre contracted out of the unit. The Application, along with the First POD, contains sufficient plans and commitments to explore the TMC Unit and develop the hydrocarbons within the TMC P A. It protects the interests of the public, COO, and the State by committing the Applicants to drill delineation and production wells in the Three Mile Creek Reservoir, and to explore additional lands outside of the participating area. Therefore, Aurora's plans for development of the Three Mile Creek Reservoir and exploration of the TMC Unit area support approval of the Application under 11 AAC 83.303(b)(4). 3. The Environmental Costs and Benefits Approval of the TMC PAis an administrative action that does not authorize any on-the-ground activity and, in itself, has no environmental impact. The DNR's approval of the First POD is only one step in the process to obtain approval to drill wells to develop the known gas reservoir within the TMC Unit. The unit operator must also obtain permits from various State and federal agencies including the Division's approval of a plan of operations. State unitization regulations require the Commissioner's approval of a plan of operations before the unit operator performs any operations on or in the unit area to minimize surface impacts.5 A proposed plan of operations must describe the operating procedures designed to prevent or 5 11 AAC 83. 346 . Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 5 ~) I ) minimize adverse effects on natural resources. When reviewing a proposed plan of operations, the Division will consider the unit operator's ability to compensate the surface owner for damage sustained to the surface estate and the plans for rehabilitation of the unit area. Unitization does not waive or reduce the effectiveness of the mitigating measures that condition the lessee's right to conduct operations on these leases. Article 8.2 of the Agreement requires that the unit plan of operations must be consistent with the leases, mitigation measures, and lessee advisories developed by the DNR for the State's most recent Cook Inlet Areawide lease sale. The mitigation measures include habitat and wildlife protection such as stream and waterbody setbacks and seasonal use restrictions to protect sensitive birds and animals. Mitigation measures such as seasonal restrictions on specific activities in certain areas can reduce the impact on bird, fish and mammal populations. State designated primary waterfowl areas protect bird populations. Regulating waste disposal is another way to limit environmental impacts. DNR also requires consolidation of facilities to minimize surface disturbances. With these and other mitigating measures, the anticipated exploration and development related activity is not likely to significantly impact bird, fish, and mammal populations. Exploration and development within the TMC Unit is subject to these mitigation measures, if proposed operations involve State surface or subsurface. When the unit operator submits a unit plan of operations for approval, the Division will apply the current mitigation measures uniformly across the unit, ensuring environmental protections that might not otherwise occur on private lands. However, the Division does not have the authority to approve a plan of operations or impose the State's mitigation measures for operations solely on CIRI lands. The TMC Unit is within the Alaska Coastal Zone, and therefore subject to the Alaska Coastal Management Program (the ACMP). Whether the activity is on State or CmI land, the appropriate federal, State, and local agencies must determine if the unit operator's plans are consistent with the ACMP, and the lessees may not commence drilling or development operations until all agencies have granted the required permits. Area residents use the TMC Unit area for subsistence hunting and fishing. Oil and gas activity may impact some wildlife habitat and may affect subsistence activity. The environmental impact will depend on the level of development activity, the effectiveness of mitigation measures, and the availability of alternative habitat and subsistence areas. In any case, the anticipated activity within the TMC Unit will have less impact on habitat and subsistence activity than if the lessees developed the leases individually. Unitized exploration, development and production will minimize surface impact. The benefits of consolidated exploration and development, application of the State's Areawide mitigation measures, and the use of existing roads, lower the potential costs to the surrounding environment. Forming the TMC P A minimizes the environmental impacts and costs of exploration and development of the unit area supports approval of the Application under the 11 AAC 83.303(b)(1). 4. The Economic Costs and Benefits to the State Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 6 '1 ) ) Production will be allocated to each tract in the TMC P A based on its surface acreage within the participating area as a percentage of the total acreage in the TMC P A. If Aurora proceeds with delineation and development of the TMC PA in accordance with the First POD, it will acquire additional well data and a year of production data by July 1, 2006. This data may justify a revision of the TMC PA boundary, which would affect the allocation of production to the individual leases. Therefore, the Applicants, the Division, and CIRI agreed to the redetermination procedures set out in Exhibit G-l. By August 1, 2006, Aurora shall apply to revise the TMC PA based the parties' analysis of the data available through July 1, 2006. The Revised TMC P A will include lands then regarded as reasonably estimated to be producing or contributing to production in paying quantities and exclude lands reasonably proven to be incapable of contributing to production in paying quantities. Following approval by the DNR and CIRI, the Revised TMC P A shall be effective with respect to all parties retroactive to the first day of the commencement of production from the TMC P A. The parties will evaluate the production data and drilling schedule annually, and implement any subsequent revisions of the TMC PA in accordance with the procedures in Exhibit G-l. The redetermination procedures ensure that production will be allocated based on the best technical data available, and retroactive adjustments will ensure that the parties receive their fair share of royalties on production from the TMC PA. Approval of the proposed TMC PA and the First POD will result in both short-term and long- term economic benefits to the State. TMC PA production will generate construction jobs in the short-term and some long-term employment. Development and production from the TMC· PA will provide royalty and tax revenues to the State over the life of the field. The lessees . may reinvest revenues in new exploration and development in the State. Additionally, the TMCP A will deliver new natural gas supplies that help to stabilize the local and regional economy. Royalty, tax, and employment benefits derived from production and economic development will far exceed any additional administrative burdens associated with permitting TMC P A facilities, administering the unit leases, or collecting royalties on production. In summary, the economic benefits outweigh the costs. The working interest owners made meaningful commitments to explore and develop the unit area and the State will receive taxes, royalties, and increased economic activity. The redetennination procedures and retroactive adjustments to the production allocation schedule allow the State to maximize production revenue. Moreover, the discovery of additional gas reserves in Cook Inlet may help to maintain stable, low cost energy supplies for the surrounding area. Therefore, the DNR's evaluation of the economic costs and benefits to the State supports approval of the Application under 11 AAC 83.303(b)(5). 5. Other Relevant Factors The Agreement requires joint approval of the Application by the DNR and CmI because the Three Mile Creek Reservoir underlies both State and CmI leases. The Division and CmI agreed to Aurora's proposal to allocate production from the TMC PA based on surface acreage. With joint management of the TMC P A, the State and CmI will review Aurora's plans to delineate and develop the reservoir. The TMC Unit Plans of Development must be consistent with State regulations and include plans to explore the area outside of the TMC P A. Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 7 ) ) Reaching agreement on an acceptable development plan and an equitable allocation of production required the cooperation of all parties. Joint management of the TMC Unit and the TMC P A provides for development of State and private lands under a unified plan that reduces environmental impacts, conserves resources, and protects the interests of all parties. Joint management of the TMC P A supports approval of the Application under 11 AAC 83.303(b )(6). III. Findings 1. Promote the Conservation of all Natural Resources The TMC P A will promote the conservation of both surface and subsurface resources through unitized, rather than lease-by-Iease, development. Approval of the Application will reduce both the number of facilities required to explore for and develop reserves and the aerial extent or the footprint required to accommodate those facilities. The formation of oil and gas units, as well as the formation of participating areas within units, generally conserves hydrocarbons. Formation of the TMC P A will provide for efficient, integrated development of the Beluga Formation within the TMC Unit. A comprehensive operating agreement and plan of development governing the area will help avoid duplicative development efforts on and beneath the surface. There will be environmental iimpacts associated with reservoir development, 'but it must proceed according to an approved unit plan of development. Additionally, before undertaki~g any specific operations on State land, the unit operator must obtain the Division's approval ,of a unit plan of operations that must undergo extensive multi-agency review. The Division may condition its approval of a unit plan of operations and other permits with mitigation measures developed for the most recent Cook Inlet Areawide lease sale in addition to those in the leases. Compliance with the mitigation measures will minimize, reduce or avoid adverse environmental impacts. ' Creating the TMC PA will help maximize oil and gas recovery, while minimizing negative impacts on other natural resources. This reduction in environmental impacts and conservation of hydrocarbon resources is in the public interest. 2. Promote the Prevention of Economic and Physical Waste Forming a participating area prevents economic and physical waste by eliminating redundant expenditures for a given level of production, and by increasing ultimate recovery with the adoption of a unified reservoir management plan. Marginally economic reserves, which otherwise would not be produced on a lease-by-Iease basis, can be produced from the TMC PAin combination with more productive leases. Facility consolidation lowers capital costs and promotes optimal reservoir management. Pressure maintenance and secondary recovery procedures are easier to design and achieve through joint, unitized efforts than would otherwise be possible. In combination, these factors allow the unit operator to develop and produce less profitable areas of a reservoir in the interest of all parties, including the State. Reducing costs and environmental impacts through unitized operations will expedite development Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 8 ) ) of reserves and will promote greater ultimate recovery of oil and gas from the unit area. This may increase and extend the State's income stream from production taxes and royalties. Formation of the TMC P A will facilitate the equitable division of costs and allocation of the hydrocarbon shares, and provide for a diligent development plan that helps to maximize hydrocarbon recovery from the reservoir. Further, the formation of a participating area, which enables commingled production, facility sharing opportunities, and adoption of a unified reservoir management strategy, may allow for the development of economically marginal hydrocarbon accumulations. 3. Provide for the Protection of all Parties of Interest, Including the State Because hydrocarbon recovery will more likely be maximized under a unified plan, the TMC PA protects the economic interests of the State, CIRI, and the overriding royalty interest owners. Formation of the TMC P A advances the efficient evaluation and development of the hydrocarbon resources while minimizing impacts to the area's cultural, biological, and environmental resources. Formation of the TMC P A protects the economic interests of the working interest owners and royalty owners of a common reservoir. The approved production allocation schedule ensures an equitable allocation of revenue to the lessors commensurate with the value of their . leases. In addition, the redetermination procedures applicable to the TMC P A will protect the economic interests of all parties. The TMC P A will not diminish access to public and navigable waters beyond those limitations imposed by law or already contained in the oil and gas leases covered by the Agreement. The Agreement provides for future expansions and contractions of the participating area, as warranted by data obtained by exploration or otherwise. The TMC P A and the Agreement thereby protect the public interest, the rights of the parties, and the correlative rights of adjacent landowners. IV. Decision The Division reviewed the statutes, oil and gas unitization regulations, the TMC Unit Agreement, and materials supplied by Aurora in support of the Application. Formation of the TMC P A within the TMC Unit will promote the conservation of all natural resources, promote the prevention of economic and physical waste, and provide for the protection of all parties in interest including the State, as discussed above. The Application adequately and equitably protects the public interest, is in the State's best interest, and it meets the requirements of AS 38.05. 180(p) and 11 AAC 83.303 (a) and (b). 1. Aurora requested that approval of the TMC PA be effective July 1, 2005 through January 31, 2007, which is consistent with the proposed term of the First POD.6 I approve the TMC PA effective July 1,2005, subject to concurrent approval by CIRI. 6 Article 9.5 of the Agreement states: "The Proper Authority will establish the effective date of the initial Participating Area. That effective date shall be no later than the date of the first Sustained Unit Production." Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 9 ") ) 2. The TMC P A includes: a. 960.00 acres described in Exhibit C and depicted in Exhibit D, and b. all unitized substances in the Beluga Formation Sands between 3,530' MD and 4,605' MD in the TMC Unit 1 well within the boundary of the approved participating area. 3. DNR accepts Exhibits A, B, C, D, G, H, and I to be true and correct as submitted; those exhibits are attached hereto as Attachments 1 through 7, respectively. 4. I approve the allocations of production to the tracts within the TMC P A set forth in Exhibits C and the allocation ofTMC Unit expenses and TMC PA expenses set forth in Exhibits H and I, respectively. 5. The Division assigns Accounting Unit Code "TMOl" to report test production prior to the effective date of the TMC P A. Aurora shall submit operator reports for gas produced and vented from the Three Mile Creek Unit 1 well that reference Accounting Unit Code TM01 and all test production shall be allocated to Tract 4, ADL 388233. 6. The Division assigns Accounting Unit Code "TMTM" to the TMC PA for royalty accounting purposes. All operator and royalty reports must reference this Accounting Unit Code for all gas produced after the effective date of the TMC P A. 7. The Unit Operator shall submit copies of the Facility Report of Produced Gas Disposition (AOGCC Form 10-422) that specify the volume of gas produced from the TMC Unit that is vented, flared, sold, or otherwise disposed. 8. I approve the First POD, as set forth in Exhibit G, for the period from July 1, 2005 through January 31, 2007. In accordance with Article 8.1.1 of the Agreement and State regulation 11 AAC 83.343, the unit operator shall submit an annual report to CJRI and the Division on January 31, 2006. The annual report must describe the extent to which the unit operator fulfilled the requirements of the First POD, and must include an explanation of any deviation or noncompliance with the approved plan. It must also provide detailed plans for the term of the plan and long-range development plans for the TMCPA. 9. In accordance with the redetermination procedures outlined in Exhibit G-1, by August 1, 2006, Aurora shall apply to the Division and CJRI to revise the TMC P A boundary based on the technical data available through July 1, 2006. The application must include detailed plans for the remaining term of the First POD and long-range development plans for the revised TMC P A. 10. If all parties agree that the data available through July 1, 2006 supports a continuation of the TMC P A boundary approved by this Finding and Decision, Aurora's proposed Three Mile Creek Unit, Three Mile Creek P A Findings and Decision Page 10 ') ) Second Plan of Development will be due on November 2,2006,90 days before the First POD expires. The Second POD must describe the extent to which the unit operator fulfilled the requirements of the First POD, and must include an explanation of any deviation or noncompliance with the approved plan. It must also provide detailed plans for the term of the Second POD and long-range development plans for the TMC P A. A person affected by this decision may appeal it, in accordance with 11 AAC 02. Any appeal must be received within 20 calendar days after the date of "issuance" of this decision, as defined in 11 AAC 02.040 (c) and (d), and may be mailed or delivered to Thomas E. Irwin, Commissioner, Department of Natural Resources, 550 W. 7th Avenue, Suite 1400, Anchorage, Alaska 99501; faxed to 1-907-269-8918; or sent by electronic mail to dnr appeals@dnr.state.ak.us. This decision takes effect immediately. If no appeal is filed by the appeal deadline, this decision becomes a final administrative order and decision of the department on the 31 st day after issuance. An eligible person must first appeal this decision in accordance with 11 AAC 02 before appealing this decision to Superior Court. A copy of 11 AAC 02 may be obtained from any regional information office of the Department of Natural Resources. ~c/- Mark D Myers, Director Division of Oil and Gas '7/Vþs Date cc: Thomas E. Irwin, DNR Commissioner Teresa Ressler, CIRI John Norman, Chairman AOGCC Jeff Landry, Assistant Attorney General Attachments: Attachment 1. Exhibit A, Unit Tracts and Exhibit F, Unit Tract Expense Participation Attachment 2. Exhibit B, Map of the Three Mile Creek Unit Boundary Attachment 3. Exhibit C, PA Tract Production Participation and Exhibit E, P A Tract Expense Participation Attachment 4. Exhibit D, Map of the Three Mile Creek P A Attachment 5. Exhibit G, Three Mile Creek Unit First Plan of Development Attachment 6. Exhibit G-1, Three Mile Creek P A Redetermination Procedures Attachment 7. Exhibit H, Contractual Ownership of the Three Mile Creek Unit Attachment 8. Exhibit I, Contractual Ownership of the Three Mile Creek PA Attachment 9. Exhibit J, Map of the Three Mile Creek Unit Contractual Ownership Three Mile Creek Unit, Three Mile Creek PA Findings and Decision Page 11 #7 Three Mile Creek Application: Questions I Requests ) ) SuþJect:Three Mile·CrëëkApplÍÖä.tiøn:Q1.l¢stiøris/ Requësts Ff?[tt:....'*~tlg~ll1?. J?n~s".1~j ()~~$@f~urRrapp~êr]:C?r#~. . . pate:. Wed,. 47:Jµ12QP5JQ:38:42~Q~OQ . The depth interval (measured depth and true vertical depth) of the proposed pool within the Three Mile Creek Unit No.1 type well must be provided. Steve Please find attached the Exhibit (lC that Andy had prepared earlier but that we never used to answer exactly this question as to depth range of the TMC PA (Tsuga 2-3 Coal Marker @ 1700' MD to Tsuga 2-7 Coal Marker @ 5531'). Is This data also the EXHIBIT "B": Well log showing Beluga coal markers in TMC #1 to my original Pool Rules Application dated July 27,2005 ? A legal description of the land area and affected leases occupied by proposed pool must be J provided. See attached xIs Have any gas-water contacts been observed in any sands within the pool? there have been no ¡/ GWCs seen in the TMCU-1 well. Please provide estimates of in-place gas and recoverable gas volumes for the pool. See J attached xis Please confirm that Aurora wishes to limit commingled producing intervals to 2,750 true vertical feet. NO, we want to commingle all zones in the existing well, from 4700' to 2400' TVD. However, the #1 well has a packer at about 3350' TVD (35001 MD), which is currently isolating the zones above from the zones below.--but we would like to commingle when we produce. thus we are looking at commingling over a 20001+ interval (2300' in the case of the existing TMC 1 well). All of these data provided are to subject to the confidentiality statues. ¡/ Randall D. Jones, CPL BELUGA COAL MARKERS IN Content-Type: application/vnd.ms-powerpoint Content-Encoding: base64 3MileExhibitA FINAL012104dnr13Mile Exhibit Content-Type: application/vnd.ms-excel Content-Encoding: base64 Content-Type: application/vnd.ms-excel NT Reserves by Zone TMCU #1.xls Content-Encoding: base64 1 of 1 8/15/2005 3 :48 PM RE: Three Mile Creek Pool Rules Public Notice - Can the AOGCC ... ) ) ~tI~j.·~.ct:...ltE:··.Thre.e.·...Mi.le·.··Cre~k·J?øol..~~ße$·.·fu~li¢·.·N?tic~.. .-. ·Càl1. the ·A.ddC.Ö··.þl1blìêh.i.this....I1oti~.e? Er()m:'.'~~~~UIJ. J?tl~$n.<:f~·~n.¢~~~~or~po\yer.Qoµ1>··. ~l.Wêq;24Æ 2Q0510:53:12~05()O 1f::~~ ::.$:'H~~~ .~;.~~i~~~!:i:·· We are ready to review with you your questions posed to us so we can publish. Call me when you get in. Randall D. Jones, CPL Manager, LAND & Negotiations AURORA GAS, LLC 10333 Richmond Avenue, Suite 710 Houston, TX 77042-4176 Telephone 713-977-5799 Facsimile 713-977-1347 Mobile 713-409-2378 .:·!:j..2:~~:.~..~.S~!..~:.!:LES?E9:PgY.J..~.~~:~..:...s:g.~ rskn@houston.rr.com ,.......................................................................................................... -----Original Message----- From: S t e ph e n Da vie s [E~!:~~:.:i:,}::..~:..9...:...~..~.9..Y.g_~~:.~.Y.A:.~::...f§..~!.~:.ª:!.!):;,~:.Ð...:....~..~:'.~:.~..~~...:...~.~:...:..:~..~] Sent: Friday, June 10, 2005 12:48 PM To: Randall D. Jones; 'Ed Jones' Cc: John Hartz; Torn Maunder Subject: Three Mile Creek Pool Rules Public Notice - Can the AOGCC publish this notice? Randy, Ed: Is Aurora Gas, LLC is ready for the AOGCC to publish the public notice for the Three Mile Creek Pool Rules? Please send us an email of approval when Aurora is ready. The pool rules process generally takes 6 to 8 weeks from publication of the public notice to approval (or denial) of pool rules. Please call me at 907-793-1224 if you have any questions. Thanks, Steve Davies Petroleum Geologist Alaska Oil & Gas Conservation Commission I of 1 8/15/2005 3:47 PM Three Mile Creek Unit Exhibit A Expiration ORIU act Tract Tract Lease Number Date Explorntion & Section 3: An; MO.OO 0.0146 Amp";e" Ine *1 Section 9: All; 640.00 Section 10: All. 640.00 ,.,.,.p< morp or less. 0.0146 AmMP. Tne *1 Section 4: E1/2, ''''71 fA r, '~~mr¡¡4: 560.00 0.015 ro,wp or less I Exploration & 0.0146 A mPMe" 1ne *1 Section 4: 80.00 0.015 , "erp< & 0.0146 America Inc *1 Section 22: <:Fl/a' 160.00 Section 23: <:117· 320.00 Section 26: Unsurveyed, An; 640.00 P1 17 Q\1I1fA '" 1~"nn1l4; 560.00 Section 34: An· 640.00 Section 35: An· 640.00 . I 1111 .erpo, more or less Segment 2 c, ,0')· "~, ,,.~, 40.00 <:;petim' 7,· 1\1117· 320.00 .,.,.M Entire tract contains approxÙ11arely 3,320.00 acres, more or less, I 8/15/2005 AURORA Exhibit A-1 ,xis3 Mile Exhibit A 01.20,04 Three Mile Creek Unit Exhibit A Tract Tract Legal Description Township 13 North, Range I I West, Seward Meridian, Alaska, Tract A Section Acreage Tract Acreage 520.00 Percent Ownership Mnend Owner Tract State of Alaska, DNR 100.00% Expiration Lease Number Date ADL- 390516 1/31/2004 Royalty Rate 0.125 ORRI Burdeus 0,0146 ORRI Ownership Working Interest Ownership Aurora Gas, LLC Working Interest Owner % 100..00 NE1I4NE1I4; more or less Mobil Exploration & Producting North America, Inc. * 1 Segment 1 Segmen!2 Section 22: Entire tract or 6 Township 13 North, Range I I West, Seward Meridian, Alaska Section I, Unsurveyed, SWI/4SEI/4, Section 12, Unsurveyed, EII2, SWII4, Section 13, Unsurveyed, N1!2, SW1/4 containing approximate1y J, I 60.00 acres, more or Jess. 1,160,00 State of Alaska, DNR 100,00% ADL, 388232 1/31/2004 0.125 o Forest Oil Corporation 100..00 7 T ownshJp 13 North, Range 1 I West, Seward Meridian, Alaska 1, Unsurvey~d,,!§1/4, E112NW1/4, SW1!4, NWI/4SE1/4; Section 12, Unsurveyed, Wl/2NW!i4; containing approximate1y 520.00 acres, more or less. 520.00 State of Alaska, DNR Forest Oi! Corporation 100..00 440.00 80.00 Total later. 8/15/2005 AURORA ExhibitA-1.xls3 Mile Exhibit A 0120,04 #6 ) ) Kirk Sanders, Vice President Legal Cook Inlet Region, Inc 2525 C Street, Suite 500 Anchorage, Alaska 99509-3330 RECEIVED July 20,2005 JUl 25 2005 Mr. Mark Myers, Direct~~ska Oil & Gas Cons. Commission Mr. Thomas Irwin, CommissionerAnchorage State of Alaska Department of Natural Resources Division of Oil and Gas 550 West 7th Avenue, Suite 800 Anchorage, Alaska 99501 SENT BY FACSIMILE & FEDEX MAIL RETURN RECIEPT REQUESTED RE: Well Certification Application Three Mile Creek Unit Kenai Peninsula Borough Cook Inlet, Alaska Gentlemen: This letter transmits a revised Exhibit "B", at the request of the Department of Natural Resources (DNR), to reflect annualized costs on same for your file. The balance of the Exhibit remains unchanged. Reference is made to my letter dated April 22, 2005 requesting Aurora's Three Mile Creek Unit, No.1 Well be deemed a well capable of producing in paying quantities, pursuant to Alaska Administrative Code Regulation 11 AAC 83.361 - Certification of Well Test Results. It is my understanding "paying quantities" means quantities sufficient to yield a return in excess of operating costs, even if drilling and equipment costs may never be repaid and the undertaking considered as a whole may ultimately result in a loss; quantities are insufficient to yield a return in excess of operating costs unless those quantities, not considering the costs of transportation and marketing, will produce sufficient revenue to induce a prudent operator to produce those quantities. Exhibit "B" is a summation of our projected Lease Operating Expenses for Aurora's Three Mile Creek Unit, No.1 Well. Exhibit "B" is quite specific detailing salaries and wages, employee benefits, necessary operations and maintenance supplies, water disposal and contract labor. Aurora respectfully requests cost data and financial information submitted and contained within Exhibit "B" in support of the Application be kept confidential, except as provided in AS 38.05.036-Audit of royalty and net profit payments by the DOR. Please review these data and facts and consider affirmatively granting our ) ') Application for this well to be deemed a well certified as capable of commercial production. V cry Truly Yours, ~¡\~... ¿..,/ Randall D. Jones, CPL Manager, Land & Negotiations lj ones(¿Daurorapower. cnm cc: Forest Oil Corporation 310 "K" Street Anchorage, Alaska 99501 Attn:Mr. James D. Arlington Land Manager AppJication Letter Trdßsmittal ONLY:. Alaska Oil and Gas Conservation Commission 333 W 7th Avenue, Suite No. 100 Anchorage, Alaska 99501 ~3539 Attn: Mr. Steve Davies tmcwellcertìtìcationexhibbtrans #5 .equesting copy of Three Mile Creek Field (Beluga Gas Pool) pool rul... ) ) Subject: requesting copy of Three Mile Creek Field (Beluga Gas Pool) pool rules application From: Brian Havelock <brian_havelock@dnr.state.ak.us> Date: Wed, 13 Jul2005 14:57:57 -0800 I ':'" :.:' ':" ,:::,> :. ',:,' ,::', ,,'; '¡":',. ,,",',:, ,"" , ' ':""':,,',, ,i,',:: :;" ,"" )' .:"';:' ',:,,::": ,": Tô: i',JdclY,CQIQmbie'·.~jO'gy~ cdlo11lbie@~dmiµ~s,~ate;~.ÚS> Jody No, you are not supposed to automatically copy the Division. It is up to us to request a copy of the application if we need to, so Yes, I would like a copy of the application for our public record. If the maps are not included, but somehow referenced, that is fine. I am guessing Steve Davies is the contact for Three Mile Creek and I can send questions to him. -----Original Message----- From: Jody Colombie [mailto:jody colombie@admin.state.ak.us] Sent: Wednesday, July 13, 2005 2:20 PM To: brian havelock@dnr.state.ak.us Subject: Re: Public Notice Three Mile Creek Field (Beluga Gas Pool) n,tY 0(1 ?' CI l. ~ C' ö ~ n y ~ c {¡ (} ~. /¡II /\ · \ ¡yOf ~ 1 I Iv ~.t ý\V o í', \~ ' (I . (L1jf . cU '7 · Ô (I,I j p.'? -' J rv 0(\ Thanks! Brian Brian Havelock Natural Resources Specialist Division of Oil & Gas Alaska Department of Natural Resources 550 West 7th Avenue, Suite 800 Anchorage, Alaska 99501 http://www.dog.dnr.state.ak.us Brian, I did not send the Division a copy of the application. Am I suppose to? The application is not available on digital. We received a paper copy from the operator. Do you want a copy? There were many maps attached, that I can't copy though. Jody Colombie Special Staff Assistant Brian Havelock wrote: Jody Did you send the Division a copy of the Three Mile Creek Beluga Gas Pool Rules Application? Is there a digital copy available? I did not see such a thing on your website. Thanks Brian Brian Havelock Natural Resources Specialist Division of Oil & Gas Alaska Department of Natural Resources 550 West 7th Avenue, Suite 800 Anchorage, Alaska 99501 http://www.dog.dnr.state.ak.us 10f2 7/13/2005 3 :44 PM equesting copy of Three Mile Creek Field (Beluga Gas Pool) pool rul... ) ) -----Original Message----- From: Jody Colombie [mailto:·jody colombie@admin.state.ak.us] S en t: Tue s da y , Ju 1 y 12...;.............2..C5"ëfs"·'''··1..I..·:..41 "'AM ............. .............. To: undisclosed-recipients: Subject: Public Notice Three Mile Creek Field (Beluga Gas Pool) 20f2 7/13/2005 3:44 PM #4 STATE OF ALASKA ) NOTICE TO PUBLISHER ) ADVERTISING ORDER NO. ADVERTISING ORDER SEF,'I3Q,r~q~',~g,~ .1:r-Jyq!Ø~Apg'~I:~S ¡,I " ': 'I., 'I' :,', '. ) , :"I"li:, ,"" ' ::, "~I': i' " I, I,'~'I, I:,:" '" ',:' I' " "I' I,.. "I; i',:; '" : ,:: .i'~ ,~: I', ': ,,:' ':", ", ,I,: ,':, ," : i" I INVOICE MUST BE IN TRIPLICATE SHOWING ADVERTISING ORDER NO., CERTIFIED AFFIDAVIT OF PUBLICATION (PART 2 OF THIS FORM) WITH ATTACHED COPY OF ADVERTISEMENT MUST BE SUBMITTED WITH INVOICE AO-02614002 F AOGCC R 333 W 7th Ave, Ste 100 o Anchorage, AK 99501 M AGENCY CONTACT DATE OF A.O. J ody Colombie PHONE July 12,2005 PCN (907) 793 -1 ??1 DA TES ADVERTISEMENT REQUIRED: b Anchorage Daily News PO Box 149001 Anchorage, AK 99514 July 13, 2005 THE MATERIAL BETWEEN THE DOUBLE LINES MUST BE PRINTED IN ITS ENTIRETY ON THE DATES SHOWN. SPECIAL INSTRUCTIONS: Type of Advertisement X Legal D Display Advertisement to be published was e-mailed D Classified DOther (Specify) SEE ATTACHED SENDINVOlê~INtRIPþICATE! AOGCC, 333 W. 7th Ave., Suite 100 iö' , Anchon:u!e. AK 99:'501 AMOUNT DATE TOTAL OF PAGE 1 OF ALL PAGES$ 2 PAGES COMMENTS REF TYPE . NUMBER 1 VEN 2 ARD 02910 3 4 ¡::IN AMnlltJT ~v r.r. Pt::M Ir. Ar.r.T ¡::v NMR DIST LlQ 05 02140100 73451 2 3 4 REQUISITIONED BY: (};r6J DIVISION APPROVAL: -'- ') ) Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission Re: Three Mile Creek Field Beluga Undefined Gas Pool Spacing and Well Construction Rules By application dated June 27, 2005, and received by the Alaska Oil and Gas Conservation Commission ("Commission") on June 28, 2005, Aurora in its capacity as Unit Operator of the Three Mile Creek Unit ("TMCU") requested an order from the Commission to define a proposed Three Mile Creek Beluga Gas Pool within the TMCU and to prescribe rules governing the development and operation of the pool. The Commission has tentatively scheduled a public hearing on this application for August 16, 2005 at 9:00 am at the offices of 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 14, 2005. If a request for a hearing is not timely filed, the Commission may 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 ih Avenue, Suite 100, Anchorage, Alaska 99501. Written comments must be received no later than 4:30 pm on August 15, 2005 except that if the Commission decides to hold a public hearing, written protest or comments must be received no later than the conclusion of the August 16,2005 hearing. If you are a person with a di bilit who may need special accommodations in 1221. ( " ~" · J"Y'~ .. N¡~ ~alr /' Published Date: July 13,2005 AO# 02614002 ) Anchorage Daily News Affidavit of Publication ) 1001 Northway Drive, Anchorage, AK 99508 PRICE OTHER OTHER OTHER OTHER OTHER GRAND AD# DATE PO ACCOUNT PER DAY CHARGES CHARGES #2 CHARGES #3 CHARGES #4 CHARGES #5 TOTAL 546792 07/13/2005 02614002 STOF0330 $164.16 $164.16 $0.00 $0.00 $0.00 $0.00 $0.00 $164.16 STATE OF ALASKA THIRD JUDICIAL DISTRICT Signed ~~Á Notice of Public Hearing . ST~TEO.F' ALASKA AI.aska Oil and Gas .Collservation Commission Re: Three Mile Creek Field '~elugatJrideflned$as' Peel I' ' ~:~ÞaCihg þhd Well\Censtructl.en: Rules B'. OPPlicotiór.dot~b JUnE" 2005,.and.r~¿'elved, 0. Tn"" ':'IO~I(O 011 ono ':;as conservatienCal1'1rTìls- ~,ar, I Cammis,sian I tit, JunE';:¡j :2005, Aurard.ln Its (ODacll. 0, unil O,.."r':II"r '" In"'I·:·'t~ree MIIE!'preek unlr I TM(LI', r..au';·¡,leO or"l..ørder fram the Cümrni,;,;,lar, 1.0 oe-line a ¡jroDo¡,;¡d,'three MI.le Creek B~lu90 'G.:n Paol ""linin \r,,,, TfSlI,C:U.:ql'ldut,å,'ple- SCrlD", "Ul"~ go~'err"n.¡1 '"E' oe'''lqp.l'J1ent.onC!pÞer~-, I10r, .01 \rIP. 0.001. ' , 'r he.êo'~n1'ï ~i~I~~·~'~~. t~~tdtt~~ l~sChed~1 e~'~pub~" lie hearl ngon this, élppHcatian far A~9Ust, 16,2005.. at Q CoO om' ot the 'alllee. of the Alaska OII,.ondGas ::an,..r,aloar, (ommi;,;,lar¡ at· 333''I\(e'st 7th Avellve:, SuiT.. 100. ':'ncnoraQ"" ':'leska9950V:'À. pers!)1Ì may, recjuestthcit thete"ntcitlvelY scheduled hea.ring.be held b. 1111i';I:I 0 ;,Mrltte nrequøst with.fhe ,Cammls- sian ".0 lo,,,,,r ¡r,on.l 3ú.:.m en August 14, 2Q05: I" ó~~a'~~';\for oh-=ar¡~9i,nat tlmelynied" ~i,~' Carr'i'T1I~~,llJr, mo. con~,ld""r Inp' 1~,Sì..ionCi? 01 or¡ .or- der ""llnOIlT 0 n..arlng Ta I"orn II Ir.~ C()mml~.ler, will 1"010 rn(~ DUOII·: n"'O,~,;nç 01..0':'" call ~93 I~:'I 'In addition; apør$~hmoYsubmi,t wrlttencem- mert;, regardlr.¡thl:; application to the "A 10skoOII, and Go.. (an~~r,oTlen C¡¡mml~:.lor, vi H3 liII~st~7t,h Avør,u" Su"'" I(¡ü ..r,(nor09'; ':'10;,1\0 '195(11.. Writ' ten comm.¡,nl' muSI t,.,. ''''C''I"dO na 101..r Ina.n4:3p· pm'o" AUQu,t 15 ~005 "'(E',·I ,hot if In.. Co.mr't:1lsJ sian oecia"", 10 halO 0 DuOII( n"vrin9 ,,,r"len pra: test vi' comm",,":, mu:,' 0... 't'c..;.e-O no lott!r than atth" conCluSion of 111'" ':'u.;lu,,1 1b 21)05 r,.,.Or1n9: If yoU .arøaper$an 'withadlsabi Il.tvwha may need speeiala.ccommocatiens in .order tacam." ment or'ta.attençlthepubllc hearing, please can: tact Jady C~lembie at 793-12~1. . I /s/: Jahn K;Narman Chairman . AO# 026140021. . < Published Date: ·JuIy 13, 2005 Teresita Peralta, 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 now and during all said 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 not in supplemental form) of said newspaper on 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 foregoing publication is not in excess of the rate charged private individuals. SU¡:¡;nd srr to ~~~ fuis date: Notary Public in and for the State of Alaska. Third DiViSiO. n. Anchorage, AlaSkr~ ~,c MM~SSION EXPIRES: 0 q f j S?07 7 P J.ß \\ll((({(f(r . , _ - \ ~~¡.:+ r.t4. 1"/". ~ ¡JÆ1t) D~ ¡--~.c:~~~lt~ ..,.~. ~'i'··· - ~.:,!, . .. ~""!,ì~j~ ~('" ~ ::.t;1·3'~~ &",.J',:,' ,~).~~, ~ . ~ ,,':), "yr, ->. .." ''Ì!IÞ . t::..' ..... -:.::. ,~~ - ':(1I1~''''1 .~ . ~~..~,'" "",'~~.;' . ,~. (')g.: ,q ~S .' ~v.~ '":.....~!<\/ . .' ~ "~..v:. ~),':\\ ~~.f.~': It.:'· . . '" ~\. ,", ".,:,. ···'.i<pIJ·..,~r,,; '~f:.' '". .i/h') } } ) 'J"' ) 02-902 (Rev. 3/94) Publishe )ginal Copies: Department Fiscal, Departm )ReceiVing AO.FRM F STATE OF ALASKA ADVERTISING ORDER S...,':. E.,..,....,,\=. ~9T.,.tr.,.. 0...·.',.... 'M...:...... '~.p.'.'. ~.i.,'.'.".~v.....'·9.,I~.."t'.IA.... q~R..·.I:.E~I~:, . :,!' '"\'::''''' I:"!' ':,:~, ',., 11"":,;:1':: ' i,I<:;' "i;" ":"1,.'1,' 'I, 'Ii:',<)::',,', :'::",~'I,' :"I!i;:¡,1 I',:!,: 'j ,I!:;,:::I',:; ;:1 AOGCC 333 West ih Avenue. Suite 100 A n('.h{)nHJ~ A K QQ"O 1 907-793-1221 NOTICE TO PUBLISHER ADVERTISING ORDER NO. INVOICE MUST BE IN TRIPLICATE SHOWING ADVERTISING ORDER NO., CERTIFIED AFFIDAVIT OF PUBLICATION (PART 2 OF THIS FORM) WITH ATTACHED COPY OF ADVERTISEMENT MUST BE SUBMITTED WITH INVOICE AO-02614002 R o M AGENCY CONTACT Jodv Colombie PHONE DATE OF A.O. Julv 17. 7005 PCN (907) 793 -1 ?71 DA TES ADVERTISEMENT REQUIRED: T o Anchorage Daily News PO Box 149001 Anchorage, AK 99514 July 13, 2005 THE MATERIAL BETWEEN THE DOUBLE LINES MUST BE I)RINTED IN ITS ENTIRETY ON THE DATES SHOWN. SPECIAL INSTRUCTIONS: United states of America AFFIDAVIT OF PUBLICATION REMINDER State of ss INVOICE MUST BE IN TRIPLICATE AND MUST REFERENCE THE ADVERTISING ORDER NUMBER. A CERTIFIED COpy OF THIS AFFIDAVIT OF PUBLICATION MUST BE SUBMITTED WITH THE INVOICE. ATTACH PROOF OF PUBLICATION HERE. division. Before me, the undersigned, a notary public this day personally appeared 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 advertisement, of which the annexed is a true copy, was published in said publication on the day of 2005, and thereafter for _ consecutive days, the last publication appearing on the _ day of t 2005, 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 2005, Notary public for state of My commission expires 02-901 (Rev. 3/94) AO.FRM {e: Public notice ) ) Subject: Re: Public notice From: "Kirby, Kimberly" <KKirby@adn.com> Date: rue, 12 Jul2005 16:04:14 -0800 I' ,,':;,',::,', : ' :,: ,!,' I :,:: " ::' I:, :::' , ,::":: '1,: "::' ':, : 1:':';:., ,,' ¡I,' ' " :,: ,I : ",::': :: :: I ~, " '~,' ,::, " ':',:';; " ' ,I>:" ,', " :, ,I ': I : :: i:' , " :-::: '::: ~ ':"' :' I To: 7.odY ÇÒloµiþi~<jpdy~eolo111bie@~dm:ï11~stat~.ak.fis> Hello Jody: BE SURE TO CHECK OUT THE LEGAL NOTICES ON-LINE. WE RECENTLY CREATED NEW LEGAL SECTIONS ON-LINE ESPECIALLY FOR THE STATE OF ALASKA. WE ARE OFFERING A 90 DAY FREE TRIAL ON ALL LEGAL ADVERTISING AS OF MAY 9TH TO PROMOTE OUR NEW ON-LINE, USER FRIENDLY CATEGORY'S. PLEASE TAKE THIS TIME TO TRACK YOUR CUSTOMERS AND SEE IF ON-LINE ADVERTISING IS RIGHT FOR YOU. Following is the confirmation information on your legal notice. Please review and let me know if you have any questions or need additional information. Account Number: STOF 0330 Legal Ad Number: 546792 Publication Date(s): July 13, 2005 Your Reference or PO#: 02614002 Cost of Legal Notice: $164.16 Additional Charges: Web Link: E-Mail Link: Bolding: Total Cost To Place Legal Notice: $164.16 Your Legal Notice Will Appear On The Web: www.adn.com: XXX X Your Legal Notice Will Not Appear On The Web www.adn.com: Thank You, Kim Kirby Anchorage Daily News Legal Classified Representative E-Mail: legalads@adn.com Ph 0 n e : ( "9"Ö'7·_)'-"mm'2"5;r::"L.C~r~r6"mm"m"'_""'" Fax: (907) 279-8170 On 7/12/05 11:39 AM, "Jody Colombie" ,~j.g_?Ymcolomb_~,,~@admin.state.ak.us> wrote: I Please publish the attached Public Notice 7/13/05. Thank you 1 of 1 7/12/20054:31 PM )ublic notice ) ) SubJect: Public notice From: Jody Colombie <jody _ colombie@admin.state.ak.us> Date: rue, 12 Jul2005 11 :39:00 -0800 I <.: :;::;,' , ,'::: ':' ':":~':;' ::.: ,,'!,:. , '::''1:, ,I': ."',j'!I.,' I,,·,,: ",I ' ',:, , :" ,,' ",', : ,,:,1,'>, ':,:'¡:;"'( :::';:" ":;:~':, "::, I:' I <"~ '!:':.,::' \.,"I.,! T9=, ~çgEtI~ds Anchorage Daily News <1~gê-laªs@fÍctn~l¢qm~ Please publish the attached Public Notice 7/13/05. Thank you Content-Type: application/msword ! Ad Order form.doc Content-Encoding: base64 I I IThree _Mile_Creek _Unit _ SpacinlL Rules.doc I 1 of 1 7/12/200511:41 AM 'ublic Notice Three Mile Creek Field (Beluga Gas Pool) ) ) Subject: Public Notice Three Mile Creek Field (Beluga Gas Pool) From: Jody Colombie <jody_colombie@admin.state.ak.us> Date: Tue, 12 Jul2005 11 :41:05 -0800 TÒ:",cinttï~cl~sèd~ré'bipients;;, '.,... , . . .. 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H~ ~lforâ , 1hai1k;~lfortl@ex}Co11lJ1ol>iT~'eom>,N4ark:,:Køvac <xesno 1 @gci.net>, gspfoff, ' , . :,: ':\: :\;:,::; '::":, " ,':": '."::;I.!::~: .': "'I:~!:,.' ;",:,',I::":~::«<,!"!,!I'!,:"",,,::;,!::"'>'" }::::::, " ' :«::::' 1'::1':1;',' I', ,,: ~ I, ,,' ': ;,,', "", I, ' , ':,:1' I ,111'1' "" ;"1; '",' ': ",I:I',~,,.,: "".II::I':'/,!II.;I I ->g~pf?~î~~ÞF9t~IJ9"Y~r.c9l11jé'!8f~gR~~~Y <gregg'.~ady@shen~co~>"Frecl':Ste~cel". ... ',,' <f*rd'·.stee9~~$~ate.·s¡d·.U,s>,.,.~çrottx·,..?rcrot~¥,~ç~2µ1;·C9µi;>,.j.ejp~~s..!.<j.~j.q~tS@fly;~t~pq~~.~...~.?tp~.,..,¡..~aþa.,... ....,....'..,. <~åp~~~la~~~:n~t(,'j~~:4rric*,<jrod~r~c~.~~cÚ~et~)è~~p~~e)'~~~~s'~~lß~~~~~rt~~?1'11,J~.e§'IM., Rlltld't ... <j~e~:n1:fuNd($cQ??~opri~liJ?s;s?m~".'·13~it .·~iv~Jy<d.wap~~~~~~~af·h.e~;I:Jâ11<jah@~w~~tat~.ak,. us~,.. ':', KurfE...()lsorii<l<~rt ___~ls9r@~egis';s~ate;~.4s>;.·.þuR,n?jë.1Þ~~:~9j~(ß16p',G9~~~:~~~,,~~le,y,' '. . <m~l<_hanl'~Y@anadark().~com>, loreq._I~T~ <19r~n~)el11~@gov~,s~at~;ãl<.l.lS~,! ulieH<?l1le <j µli~ _houle~d.tl!. state.,~ak·llS>, JPljn WK;"rz-<j~k~tz@ssp,.prg~ "~~7al}.J' .flip ····."".,1,'/..':.· '>,!, ...,'. 'i,' <suzan~ hill@dec.s~ate.ak. us>,...tab,le~k<taQle~k@unpcaL'~om~ , Bréldy· <oraq)'@aøgß..6rg>,··Biian Havelock <beh(@dnr .state~ak. us>, bpopp <bpopp@borough~kenai.ak. us> ,'Jim White: <jimwhite@satx.rr.com>,"John S. Haworth" <john.s.haworth@exXo11111o~il.cortl>,11'larty <marty@rkindustria1.com>, ghammons <ghammons@aol.com>, rmclean <rmclean@pobox.alaska.net>, mkm7200 <mkm7200@aol.com>, Brian Gillespie <ifbmg@uaa.a1aska.edu>, Dåvid L Boelens . <dboelens@aurorapower.com>, Todd Durkee <TDURKEE@KMG.com>, GarySchultz <gary _ schultz@dnr.state.ak.us>, Wayne Rancier <RANCIER@petro-c~ada.ca>, Bill Miller <Bill_Miller@xtoalaska.com>, Brandon Gagnon <bgagnon@brenalaw.com>, Paul Winslow <pmwinslow@forestoi1.com>, Garry Catron <catrongr@bp.com>, Sharmaine· Copeland <copelasv@bp.com>, Kristin Dirks <kristin _ dirks@dnr.state.ak.us>, Kaynell Zeman <kjzeman@marathonoil.com>, John Tower <John.Tower@eia.doe.gov>, Bill Fowler' <Bill_Fowler@anadarko.COM>, Vaughn Swartz <vaughn.swartz@rbccm.com>, Scott Cr~swick <scott.cranswick@mms.gov>, Brad McKim <mckimbs@BP.com>, Steve Lambe <lambes@unocal.com>, jack newell <jack.newell@acsalaska.net>, James Scherr lof2 7/12/2005 11 :41 AM )ublic Notice Three Mile Creek Field (Beluga Gas Pool) ) ) 20f2 7/12/2005 11 :41 AM Citgo Petroleum Corporation PO Box 3758 Tulsa, OK 74136 Mona Dickens Tesoro Refining and Marketing Co. Supply & Distribution 300 Concord Plaza Drive San Antonio, TX 78216 Jerry Hodgden Hodgden Oil Company 408 18th Street Golden, CO 80401-2433 Kay Munger Munger Oil Information Service, Inc PO Box 45738 Los Angeles, CA 90045-0738 Mark Wedman Halliburton 6900 Arctic Blvd. Anchorage, AK 99502 Ciri Land Department PO Box 93330 Anchorage, AK 99503 Jill Schneider US Geological Survey 4200 University Dr. Anchorage, AK 99508 Darwin Waldsmith PO Box 39309 Ninilchick, AK 99639 Penny Vadla 399 West Riverview Avenue Soldotna, AK 99669-7714 Bernie Karl K&K Recycling Inc. PO Box 58055 Fairbanks, AK 99711 ) Mary Jones XTO Energy, Inc. Cartography 810 Houston Street, Ste 2000 Ft. Worth, TX 76102-6298 Robert Gravely 7681 South Kit Carson Drive Littleton, CO 80122 Richard Neahring NRG Associates President PO Box 1655 Colorado Springs, CO 80901 Samuel Van Vactor Economic Insight Inc. 3004 SW First Ave. Portland, OR 97201 Schlumberger Drilling and Measurements 2525 Gambell Street #400 Anchorage, AK 99503 Baker Oil Tools 4730 Business Park Blvd., #44 Anchorage, AK 99503 Gordon Severson 3201 Westmar Cr. Anchorage, AK 99508-4336 James Gibbs PO Box 1597 Soldotna, AK 99669 Richard Wagner PO Box 60868 Fairbanks, AK 99706 Williams Thomas Arctic Slope Regional Corporation Land Department PO Box 129 Barrow, AK 99723 ) David McCaleb IHS Energy Group GEPS 5333 Westheimer, Ste 100 Houston, TX 77056 George Vaught, Jr. PO Box 13557 Denver, CO 80201-3557 John Levorsen 200 North 3rd Street, #1202 Boise, 10 83702 Michael Parks Marple's Business Newsletter 117 West Mercer St, Ste 200 Seattle, WA 98119-3960 David Cusato 200 West 34th PMB 411 Anchorage, AK 99503 Ivan Gillian 9649 Musket Bell Cr.#5 Anchorage, AK 99507 Jack Hakkila PO Box 190083 Anchorage, AK 99519 Kenai National Wildlife Refuge Refuge Manager PO Box 2139 Soldotna, AK 99669-2139 Cliff Burglin PO Box 70131 Fairbanks, AK 99707 North Slope Borough PO Box 69 Barrow, AK 99723 #3 \II' ) ") ~~Aumra Gas, LLC wwvv.aurorapower.com Alaska Oil and Gas Conservation Commission 333 W 7th Avenue, Suite No. 100 Anchorage, Alaska 99501-3539 June 27, 2005 Attn: Mr. Steve Davies Petroleum Geologist RE: Pool Rules Application Three Mile Creek Unit Kenai Peninsula Borough Cook Inlet, Alaska Gentlemen: Aurora Gas, LLC (AURORA), as Operator of the Three Miles Creek Unit (TMCU), herein submits the following information in support and establishment of initial Field and Pool Rules for the Three Miles Creek Unit. Although full field delineation has not occurred, AURORA has conducted a Pre-Application meeting with the Division of Oil and Gas, Department of Natural Resources (DNR) and the Cook Inlet Region, Inc. (CIRI) to establish the initial Three Mile Creek (TMC) Participating Area (TMCPA). We seek their joint approval since AURORA's proposed TMCPA is comprised of portions of leases granted by both parties; therefore, it is timely to apply for Field and Pool Rules to govern the continued development of hydrocarbon extraction within the TMCU. Exhibit "A" attached hereto shows the proposed TMCPA. The Three Mile Creek field is located in the central and southern part of the TMCU which is approximately 5 miles west of the Beluga River Unit. Likewise, the proposed TMCP A is located within the southern part of the TMCU. BACKGROUND AURORA drilled the TMCU No.1 discovery well to a depth of 8015.6' TVD and 8185' MD at a surface location ofx=286,393.488, y=2,624,191.025 (148' FWL,I,504' FNL) situated in the NW1I4SW1.4 of Section 35, with a bottornhole location of x=285,557.07, y=2,624,171.045 (688' FEL, 1,484' FNL) situated in the NEl/4SEl/4 of Section 34, both within T13N, Rl1 W, SM., as shown on Exhibit "A". The well tested gas at potentially commercial rates from six distinct Beluga Formation sand intervals in two separate tests. Reports of the 4-point multi-rate flow tests have not yet been filed with the AOGCC, as the last one was finished only a week ago, but preliminary results are attached as Exhibit F, in the form of Ryder-Scott developed Excel spreadsheet macros. AURORA hopes to drill at least two (2) delineation gas wells this year in the same Section 34 and letter seeks Alaska Oil and Gas Conservation Commission (AOGCC) approval to do so. Consequently, AURORA respectfully seeks special pool rules be established to govern well spacing based on approximately 60 acres. Pursuant to Regulation 20 AAC, 25.055, the normal statewide spacing requirement for a gas pool of no more than one (1) gas well per governmental section, and such gas wells not being drilled or completed closer than 3,000' feet to any well drilling to or capable of producing from the same Beluga Reservoir or pool not apply to the TMC field. Actually, it is planned that the wells will be close to the center line of the long reservoir (N-S axis), so the drainage areas 10333 Richmond Avenue, Suite 710 · Houston, Texas 77042 · (713) 977-5799 · Fax (713) 977-1347 1400 West Benson Blvd., Suite 410· Anchorage, Alaska 99503. (907) 277-1003 · Fax (907) 277-1006 ) ) will be rectangular, with the length of the rectangles perpendicular to the length of the reservoir (E- W). ANALOG FIELDS Beluga River Unit - The well spacing at Beluga River Unit (BRU) varies between 40..80 acres (see attached plat). Most of the wells in BRU are completed in both the Sterling and Beluga formations. The Beluga Formation, having higher clay content than the Beluga, has inferior reservoir characteristics with a recovery factor estimated to be 80% versus 90% for the Sterling, with recoveries of 800 MCF / AF for the former versus 945 MCF/AF for the latter. The Beluga Formation at BRU is very likely under-developed in some areas due to the wider well spacing. Whilst approximately half of BRU' s reserves are expected to come from the Beluga F onnation, this is due to the fact that the gross gas column, is larger with multiple thin sands versus the thicker, cleaner sands of the Sterling Formation, which need fewer wells to drain the reservoir. Kenai Unit.. The Kenai Unit has production from the Sterling, Beluga and Tyonek fonnations. If we view just the Beluga producing wells within the Beluga P A, we also see well spacings of 48..56 acres/well, comparable with the proposed drainage at Three Mile Creek (see attached plat). AURORA has received its approved pipeline permits around June 15, 2005 and plans to commence construction of a 5 mile natural gas gathering line to interconnect with AURORA's Lone Creek gathering line to the south and also install a gas production facility at the TMCU # 1 wellsite, henceforward to be designated the TMCU Central Pad. First sales are expected as early as August 1,2005, followed by the commencement of drilling operations for the first of the two (2) delineation gas wells around September 1, 2005. RESERVOIR DESCRIPTION The TMC field will produce dry gas from the Beluga Formation. Gas composition is 99% methane with a specific gravity of 0.565. The Beluga Formation is part of the Kenai Group, which comprises most of the sedimentary fill of the Cook Inlet forearc basin. All rocks of the Kenai Group are of continental origin, with the Beluga Formation representing braided, anastomozing and meandering river systems. Based on clay and heavy mineral studies it is generally believed that the Beluga sediments were derived primarily from the uplifted and metamorphosed Kenai/Chugach terrane to the East with secondary contribution from the emerging Alaska Range in the West and Northwest. Ash layers from the Aleutian Chain volcanoes are found throughout the sediments and are easy to identify preserved in the innumerable, interbedded coal seams. The reservoir is relatively low permeability, ranging from 1..20 md, averaging 5 md. Porosities range from 12..20 %, with an average of 15%. The sandstones have a high proportion of lithic and organic debris with clay content of 18-20 %. The entire reservoir system is a freshwater channel and braided stream environment with severe discontinuity between sands over the areal extent of the structure, as suggested by the difficulty in correlating individual sand beds between the TMCU #1 well and the Superior Three Mile Creek State (TMCS) #1 well, less than one mile away towards the southeast. Similar characteristics are seen at the nearby CPAI-operated Beluga River Unit, where ) ') the same Beluga sand is rarely seen by more than 2 or 3 wells. This lenticular and discontinuous nature makes for a very complex trapping mechanism, although the predominant trapping mechanism is believed to bee structural. A confidential discussion of the Beluga Formation interval is contained on pages 7 through 9 of the TMC Technical Report, attached hereto as Exhibit "C". The TMC field is a North-South trending anticlinal fold with three-way structural closure and fault-dependency on the western side. The easterly-vergent Tyonek Reserve Thrust Fault was penetrated within the TMCU #1 well at approximately 777' MD (758' TVDI -428' TVDSS), as supported by FMI data. Beds above the fault zone have dips of 70 degrees towards the east, suggesting fault drag, whereas beds below the fault plane have dips of 20 degrees towards the east. Gas readings increased once the fault was crossed, strongly suggesting that gas is trapped against the fault itself, although the first indication of potential Beluga gas pay occurs below the coal marker at 1,700' MD .~ (1,623' TVDI -1,293' TVDSS). The lowermost potential Beluga gas pay is believed to be at 5,512' MD (5,337' TVDI -5,008' TVDSS), based on interpretation of log data, especially the DSI data. AURORA failed to recover gas on test below 5,600' MD (5,425' TVDI - 5,095' TVDSS). There is still considerable uncertainty concerning the productivity of the Beluga reservoirs between the depths of 4,610' MD (4,437' TVD/.. 4,107' TVDSS) and 5,510' MD (5,335' TVDI -5,005' TVDSS), depending on how the data are interpreted and AURORA intends to collect more data in subsequent wells to determine if this is gas productive or a transition zone. The Beluga gas accumulation at TMCU is believed to share a common lower boundary, where higher saturation gas transitions to lower saturation gas. Individual, discontinuous Beluga sand bodies will likely have separate gas...water contacts within the overall structure with a propensity for more linear and oblate drainage radii, according to the individual channel body orientation, which is unknown at this time, although PMI interpretation suggests deposition from the East and Northeast. RESERVOIR MANAGEMENT Due to the measured low rates from individual Beluga intervals, it will be commercially necessary for AURORA to commingle production from several Beluga intervals whenever possible. Consistent with the proposed single TMCPA, AURORA proposes a single Beluga Pool encompassing all of the currently identified Beluga intervals identified in the TMCU # 1 Well, and also any future new intervals of the same age that might be found within the mapped limits of the TMC field from the Beluga (Tsuga 2..3) coal marker observed at 1,700' MD (1,623' TVDI -1,293' TVDSS), as seen on the gamma ray and density logs for the TMCU # 1 Well (Exhibit "C" attached hereto) to the Beluga (Tsuga 2..7) coal marker seen at 5,531' MD (5,356' TVD¡ -5,026' TVDSS), and their respective stratigraphic equivalents across the field at whichever depth they may be encountered in subsequent wells. To ensure optimal resource recovery, AURORA proposes to limit initial commingled producing intervals to within 2,100' vertical feet. This methodology has application in the tight reservoirs encountered. This tight resource would not otherwise support infùl drilling independent of other intervals within a given wellbore, and thus requires contribution from a large gross interval. As depletion occurs over the life of the TMC field and is deemed operationally prudent, AURORA may request expansion of ') ) the 2,750' vertical foot limit regarding commingled perforations as a means to increase resource recovery. Additionally, the Beluga intervals are in the ongoing evaluation stages of development. Pay identification and petrophysical limits on resource viability are continually evolving. As a means to advance this understanding, hydraulic fracture stimulations may be employed in the near future in an attempt to further commercialize the moderately low quality reservoir encountered. AURORA is requesting limited restrictions on wellbore spacing as tight spacing is expected necessary to maximize resource recovery which is consistent with the complex nature of this moderately low permeability reservoir. Consequently, AURORA respectfully seeks special pool rules be established to govern well spacing based on approximately 60 acres. Pursuant to Regulation 20 AAC, 25.055, the normal statewide spacing requirement for a gas pool of no more than one (1) gas well per governmental section, and such gas wells not being drilled or completed closer than 3,000' feet to any well drilling to or capable of producing from the same Beluga pool, AURORA respectfully hereby requests these parameters not apply to the TMC field. Summarizing the manner in which the proposed plan will maximize resource recovery is as follows: · Increasing the number of take points in this moderately low permeability reservoir; · Improving the unloading of liquid by combining production from multiple tight intervals; · Commercializing a moderately low quality resource otherwise likely to not be recovered; · Lowering the economic threshold of field development, reducing the abandonment flow rates of wells, reducing operating expense, thereby producing longer and recovering more reserves. AURORA further proposes that the annual bottomhole pressure measurement requirement be satisfied by a single key well pressure survey conducted at least once per year. Bottomhole pressure may be computed from surface measurements taken with an accurate pressure gauge provided that it can be accurately extrapolated to bottomhole conditions. The pressure will be referenced to the 2,933' TVD/ 3,070' MD. The Original reservoir pressure at this datum is 1,452 psia. WELLBORE CONSTRUCTION AURORA proposes that subsequent wens drilled in the TMCU Beluga P A will have a minimum surface casing point of+/- 600' TVD and a maximum depth of 1,000' TVD. Additionally, AURORA requests the AOGCC not establish any requirement for installation of surface nor subsurface safety valves (SSV's nor SSSVs) on trees or in wellbores in the TMC field. ) " ADMINISTRATIVE APPROVAL AURORA requests the TMCU Pool Rules allow for Administrative Approval for changes or exceptions filed pursuant to AOGCC regulations. CONCLUSION AURORA requests the proposed TMCU Beluga Pool Rules be approved as submitted. AURORA believes the proposed TMCU Beluga Pool Rules will enable optimal resource recovery, provide for commercial viability and compliment the proposed TMCP A thereby assuring the protection of correlative rights within proposed TMCP A. The proposed TMCP A, if approved, will protect the economic interests of the working interest owners and royalty owners of a common reservoir and the production allocation schedule, if approved as proposed by AURORA, ensures an equitable allocation of revenue to the lessors commensurate with the value of their leases. LIST OF INCLUDED EXHIBITS EXHIBIT "A": Shows the proposed TMCPA and the wellbores in the TMCPA. EXHIBIT "B": Well log showing Beluga coal markers in TMC #1. EXHIBIT "C": TMC Technical Report, including Structure Contour Maps and Cross- Sections, as included in the Three Mile Creek Unit PA Application (attached) and including a Confidential Reservoir Information (Beluga). EXHIBIT "F": Prelimary multi-rate flow test analyses of upper and lower completions CONFIDENTIALITY AURORA requests to the extent possible the geologic and engineering data, presented in this Application be disclosed only to those persons who are required to review and act upon this Application for approval. Otherwise, infonnation presented and discussion of results obtained to date may provide critical competitive infonnation to others regarding the commerciality of this field and other geologic structures in the area. If you require additional infonnation regarding this Application, please contact Mr. Ed Jones, Vice President, Engineering at the number below or the undersigned. Your prompt attention to this matter is sincerely appreciated. Very Truly Yours, 1è~ Randall D. Jones, CPL Manager, Land & Negotiations rjones@aurorapower.com Enclosures cc: A. Clifford S. Pfoff ) ) Forest Oil Corporation 310 "K" Street Anchorage, Alaska 99501 Attn: Mr. James D. Arlington Land Manager Cook Inlet Region, Inc 2525 C Street, Suite 500 Anchorage, Alaska 99509-3330 Attn: Kirk McGee Vice President - Real Estate Mr. Mark Myers, Director Mr. Thomas Irwin, Commissioner State of Alaska Department of Natural Resources Division of Oil and Gas 550 West 7th Avenue, Suite 800 Anchorage, Alaska 99501 aogcc pool rules applicationformal ¡ ¡ '1 ¡ I U MILE ~"': lTIIT::L ~ ~ I..1.C #2 ·050526_ Questions _regarding_ TMCApplication -1 .doc: Content-Type: application/msword - - [Content-Encoding: base64 Jack Hartz P.E. <l'ack hartz(â1admin.state.ak.us> ..............................................~...................... . ............................................~................................................................................ Alaska Oil & gas Conservation Commission Alaska Oil & Gas Conservation Commission 333 W 7th Ave. Suite 100 Anchorage AK 99501 907-793-1232 Fax: 907-276-7542 Jack Hartz, P.E. Sr. Reservoir Engineer Thanks, You can call me , Tom Maunder (907-793-1250) or Steve Davies (907-793-1224) if you have any questions. We are planning to notice a public hearing on the spacing rule request. The minimum time from public notice to a hearing date is about 30+ days. The sooner it is noticed the better. Please send in the additional information and we will add it to your application material. Gents, The attached document has a few questions regarding your application. It appeared you were only applying for a spacing rule and made a surveillance recommendation. See our comments and questions. s...... .u....:"b.. ...:..·:J.e:¢t...=.. ..í..·.·..::..:.hr.'... .::,e... e.·...·..: M:......::. .:..'~.l.e.·:} .C.·:·.:.·.1',.,·..e: e. .:.k. (J..:... ..n.·.:.l.'t. .À:....... P.·. .'.P:·.:·.:.l....1.·.:.C....·..:a. ....t. 1.'.. 0:.. ...11.·:0...:.......0... rom.·.·..,.·...·:...' '.'..,.e...flts .. F~PIt),:·.JP~Ï1.¡~~#·..<ja.P#;~~~@a~tl1~n;s~ate;~.ll~~:···: :Qª~e:JF:tí,.47"K,"CC',",^^~ ^^_..cc . --- ) ) , ) ') Questions regarding Aurora's Three Mile Creek Draft Application 1. Is it your intent to define the TMC reservoir as a pool, i.e., Beluga fonnation sands and its structural or stratigraphic, rock and gas characteristics or are you simply applying for a spacing rule? 2. Sixty-acre spacing: How did you arrive at 60 acres (as opposed to 40 or 100 acres)? · Material balance, proj ected reservoir and well perfonnance or other? · Do you have any infonnation that allows a realistic estimate of the effective drainage area of TMC Field wells? · The intra-well spacing appears to be 60 acres but wouldn't it be» considering the estimated productive area, i.e., 5 wells draining +/-1200 acres? The TMC Beluga sands appear similar to other accumulations - arbitrary spacing is not really applicable there either (other analogs such as Beluga River and North Cook Inlet reservoirs are both developed on much greater than 60-acre spacing) · Pg. 13 of P A application references 40-acre spacing in the Development Plans section. · What is the estimated OGIP (volumetric or otherwise) at this stage of delineation? 3. Confidentiality - AOGCC needs an appropriate amount of public infonnation to support the findings, conclusions and rules you request. · The only rules requested are the spacing allowance and · Pool definition · Clearly state which data (pages or figures) are confidential. The rest will need to public to support the rules requested. 4. Neither surface nor subsurface are required by the regulations. Your request is quite similar to Unocal's at Happy Valley. The rule for Happy Valley states, "Sub-surface safety valves shall not be required in well bores in the Happy Valley Field equipped with surface safety valves. The nominal testing frequency for safety valves is semi- annual and there is no "low pressure" limit that can be used to relieve the operator of the testing requirement. #1 e www.aurorapower.com Alaska Oil and Gas Conservation Commission 333 W 7th Avenue, Suite No. 100 Anchorage, Alaska 99501-3539 June 27,2005 Attn: Mr. Steve Davies Petroleum Geologist RE: Pool Rules Application Three Mile Creek Unit Kenai Peninsula Borough Cook Inlet, Alaska Gentlemen: Enclosed is a revision of my pre-application letter to you dated April 21, 2005. Please discard the aforementioned letter and insert this Formal Application Letter for the Establishment of Pool Rules for Aurora's Three Mile Creek Unit. All exhibits previously submitted remain unchanged and two new plats of the analog fields are submitted herewith. Your prompt attention to this matter is sincerely appreciated. e Very Truly Yours, R~ Randall D. Jones, CPL Manager, Land & Negotiations rjones@aurorapower.com aogcc poolrulesformal cover letter jf' L) JUN ;l ~ {m e 10333 Richmond Avenue, Suite 710· Houston, Texas 77042. (713) 977-5799· Fax (713) 977-1347 1400 West Benson Blvd., Suite 410· Anchorage, Alaska 99503· (907) 277-1003· Fax (907) 277-1006 e www.aurorapower.com Alaska Oil and Gas Conservation Commission 333 W 7th Avenue, Suite No. 100 Anchorage, Alaska 99501-3539 June 27, 2005 Attn: Mr. Steve Davies Petroleum Geologist RE: Pool Rules Application Three Mile Creek Unit Kenai Peninsula Borough Cook Inlet, Alaska Gentlemen: Aurora Gas, LLC (AURORA), as Operator of the Three Miles Creek Unit (TMCU), herein submits the following information in support and establishment of initial Field and Pool Rules for the Three Miles Creek Unit. Although full field delineation has not occurred, AURORA has conducted a Pre-Application meeting with the Division of Oil and Gas, Department of Natural Resources (DNR) and the Cook Inlet Region, Inc. (CIRI) to establish the initial Three Mile Creek (TMC) Participating Area (TMCPA). We seek their joint approval since AURORA's proposed TMCPA is comprised of portions of leases granted by both parties; therefore, it is timely to apply for Field and Pool Rules to govern the continued development of hydrocarbon extraction within the TMCU. Exhibit "A" attached hereto shows the proposed TMCP A. e The Three Mile Creek field is located in the central and southern part of the TMCU which is approximately 5 miles west of the Beluga River Unit. Likewise, the proposed TMCP A is located within the southern part of the TMCU. BACKGROUND e AURORA drilled the TMCU No.1 discovery well to a depth of 8015.6' TVD and 8185' MD at a surface Jøcation ofx=286,393A88, y=2,624,191.025 (148' FWL,I,504' FNL) situated in the NW1I4SWIA of Section 35, with a bottomhole location of x=285,557.07, y=2,624,171.045 (688' FEL, 1,484' FNL) situated in the NE1I4SE1I4 of Section 34, both within T13N, Rll W, SM., as shown on Exhibit "A". The welltested gas at potentially commercial rates from six distinct Beluga Formation sand intervals in two separate tests. Reports ofthe 4-point multi-rate flow tests have not yet been filed with the AOGCC, as the last one was finished only a week ago, but preliminary results are attached as Exhibit F, in the form of Ryder-Scott developed Excel spreadsheet macros. AURORA hopes to drill at least two (2) delineation gas wells this year in the same Section 34 and letter seeks Alaska Oil and Gas Conservation Commission (AOGCC) approval to do so. Consequently, AURORA respectfully seeks special pool rules be established to govern well spacing based on approximately 60 acres. Pursuant to Regulation 20 AAC, 25.055, the normal statewide spacing requirement for a gas pool of no more than one (1) gas well per governmental section, and such gas wells not being drilled or completed closer than 3,000' feet to any well drilling to or capable of producing from the same Beluga Reservoir or pool not apply to the TMC field. Actually, it is planned that the wells will be close to the center line of the long reservoir (N -S axis), so the drainage areas 10333 Richmond Avenue, Suite 710· Houston, Texas 77042. (713) 977-5799. Fax (713) 977-1347 1400 West Benson Blvd., Suite 410· Anchorage, Alaska 99503. (907) 277-1003· Fax (907) 277-1006 . . e will be rectangular, with the length of the rectangles perpendicular to the length of the reservoir (E- W). ANALOG FIELDS Beluga River Unit - The well spacing at Beluga River Unit (BRU) varies between 40-80 acres (see attached plat). Most of the wells in BRU are completed in both the Sterling and Beluga formations. The Beluga Formation, having higher clay content than the Beluga, has inferior reservoir characteristics with a recovery factor estimated to be 80% versus 90% for the Sterling, with recoveries of 800 MCF/ AF for the former versus 945 MCF/AF for the latter. The Beluga Formation at BRU is very likely under-developed in some areas due to the wider well spacing. Whilst approximately half of BRU' s reserves are expected to come from the Beluga Formation, this is due to the fact that the gross gas column is larger with multiple thin sands versus the thicker, cleaner sands of the Sterling Formation, which need fewer wells to drain the reservoir. e Kenai Unit - The Kenai Unit has production from the Sterling, Beluga and Tyonek formations. If we view just the Beluga producing wells within the Beluga P A, we also see well spacings of 48-56 acres/well, comparable with the proposed drainage at Three Mile Creek (see attached plat). AURORA has received its approved pipeline permits around June 15, 2005 and plans to commence construction of a 5 mile natural gas gathering line to interconnect with AURORA's Lone Creek gathering line to the south and also install a gas production facility at the TMCU #1 wellsite, henceforward to be designated the TMCU Central Pad. First sales are expected as early as August 1,2005, followed by the commencement of drilling operations for the first of the two (2) delineation gas wells around September 1, 2005. RESERVOIR DESCRIPTION e The TMC field will produce dry gas from the Beluga Formation. Gas composition is 99% methane with a specific gravity of 0.565. The Beluga Formation is part of the Kenai Group, which comprises most of the sedimentary fill of the Cook Inlet forearc basin. All rocks of the Kenai Group are of continental origin, with the Beluga Formation representing braided, anastomozing and meandering river systems. Based on clay and heavy mineral studies it is generally believed that the Beluga sediments were derived primarily from the uplifted and metamorphosed Kenai/Chugach terrane to the East with secondary contribution from the emerging Alaska Range in the West and Northwest. Ash layers from the Aleutian Chain volcanoes are found throughout the sediments and are easy to identify preserved in the innumerable, interbedded coal seams. The reservoir is relatively low permeability, ranging from 1·20 md, averaging 5 md. Porosities range from 12·20 %, with an average of 15%. The sandstones have a high proportion of lithic and organic debris with clay content of 18·20 %. The entire reservoir system is a freshwater channel and braided stream environment with severe discontinuity between sands over the areal extent of the structure, as suggested by the difficulty in correlating individual sand beds between the TMCU #1 well and the Superior Three Mile Creek State (TMCS) #1 well, less than one mile away towards the southeast. Similar characteristics are seen at the nearby CP AI-operated Beluga River Unit, where . . e the same Beluga sand is rarely seen by more than 2 or 3 wells. This lenticular and discontinuous nature makes for a very complex trapping mechanism, although the predominant trapping mechanism is believed to bee structural. A confidential discussion of the Beluga Fonnation interval is contained on pages 7 through 9 of the TMC Technical Report, attached hereto as Exhibit "C". The TMC field is a North-South trending anticlinal fold with three-way structural closure and fault-dependency on the western side. The easterly-vergent Tyonek Reserve Thrust Fault was penetrated within the TMCU #1 well at approximately 777' MD (758' TVD/ -428' TVDSS), as supported by FMI data. Beds above the fault zone have dips of 70 degrees towards the east, suggesting fault drag, whereas beds below the fault plane have dips of 20 degrees towards the east. Gas readings increased once the fault was crossed, strongly suggesting that gas is trapped against the fault itself, although the first indication of potential Beluga gas pay occurs below the coal marker at 1,700' MD (1,623' TVD/-l,293' TVDSS). The lowermost potential Beluga gas pay is believed to be at 5,512' MD (5,337' TVD/ -5,008' TVDSS), based on interpretation of log data, especially the DSI data. AURORA failed to recover gas on test below 5,600' MD (5,425' TVD/ - 5,095' TVDSS). There is still considerable uncertainty concerning the productivity of the Beluga reservoirs between the depths of 4,610' MD (4,437' TVD/ - 4,107' TVDSS) and 5,510' MD (5,335' TVD/ -5,005' TVDSS), depending on how the data are interpreted and AURORA intends to collect more data in subsequent wells to determine if this is gas productive or a transition zone. e The Beluga gas accumulation at TMCU is believed to share a common lower boundary, where higher saturation gas transitions to lower saturation gas. Individual, discontinuous Beluga sand bodies will likely have separate gas-water contacts within the overall structure with a propensity for more linear and oblate drainage radii, according to the individual channel body orientation, which is unknown at this time, although FMI interpretation suggests deposition from the East and Northeast. RESERVOIR MANAGEMENT Due to the measured low rates from individual Beluga intervals, it will be commercially necessary for AURORA to commingle production from several Beluga intervals whenever possible. Consistent with the proposed single TMCP A, AURORA proposes a single Beluga Pool encompassing all of the currently identified Beluga intervals identified in the TMCU # 1 Well, and also any future new intervals of the same age that might be found within the mapped limits of the TMC field from the Beluga (Tsuga 2-3) coal marker observed at 1,700' MD (1,623' TVD/ -1~293' TVDSS), as seen on the gamma ray and density logs for the TMCU #1 Well (Exhibit "C" attached hereto) to the Beluga (Tsuga 2-7) coal marker seen at 5,531' MD (5,356' TVD/ -5,026' TVDSS), and their respective stratigraphic equivalents across the field at whichever depth they may be encountered in subsequent wells. e To ensure optimal resource recovery, AURORA proposes to limit initial commingled producing intervals to within 2,100' vertical feet. This methodology has application in the tight reservoirs encountered. This tight resource would not otherwise support infill drilling independent of other intervals within a given wellbore, and thus requires contribution from a large gross interval. As depletion occurs over the life of the TMC field and is deemed operationally prudent, AURORA may request expansion of . . e the 2,750' vertical foot limit regarding commingled perforations as a means to increase resource recovery. Additionally, the Beluga intervals are in the ongoing evaluation stages of development. Pay identification and petrophysical limits on resource viability are continually evolving. As a means to advance this understanding, hydraulic fracture stimulations may be employed in the near future in an attempt to further commercialize the moderately low quality reservoir encountered. e AURORA is requesting limited restrictions on wellbore spacing as tight spacing is expected necessary to maximize resource recovery which is consistent with the complex nature of this moderately low permeability reservoir. Consequently, AURORA respectfully seeks special pool rules be established to govern well spacing based on approximately 60 acres. Pursuant to Regulation 20 AAC, 25.055, the normal statewide spacing requirement for a gas pool of no more than one (1) gas well per governmental section, and such gas wells not being drilled or completed closer than 3,000' feet to any well drilling to or capable of producing from the same Beluga pool, AURORA respectfully hereby requests these parameters not apply to the TMC field. Summarizing the manner in which the proposed plan will maximize resource recovery is as follows: · Increasing the number of take points in this moderately low permeability reservoir; · Improving the unloading of liquid by combining production from multiple tight intervals; · Commercializing a moderately low quality resource otherwise likely to not be recovered; · Lowering the economic threshold of field development, reducing the abandonment flow rates of wells, reducing operating expense, thereby producing longer and recovering more reserves. AURORA further proposes that the annual bottomhole pressure measurement requirement be satisfied by a single key well pressure survey conducted at least once per year. Bottomhole pressure may be computed from surface measurements taken with an accurate pressure gauge provided that it can be accurately extrapolated to bottomhole conditions. The pressure will be referenced to the 2,933' TVD/3,070' MD. The Original reservoir pressure at this datum is 1,452 psia. WELLBORE CONSTRUCTION AURORA proposes that subsequent wells drilled in the TMCU Beluga P A will have a minimum surface casing point of +/- 600' TVD and a maximum depth of 1,000' TVD. Additionally, AURORA requests the AOGCC not establish any requirement for installation of surface nor subsurface safety valves (SSV's nor SSSVs) on trees or in wellbores in the TMC field. e . . e ADMINISTRATIVE APPROVAL AURORA requests the TMCU Pool Rules allow for Administrative Approval for changes or exceptions filed pursuant to AOGCC regulations. CONCLUSION AURORA requests the proposed TMCU Beluga Pool Rules be approved as submitted. AURORA believes the proposed TMCU Beluga Pool Rules will enable optimal resource recovery, provide for commercial viability and compliment the proposed TMCP A thereby assuring the protection of correlative rights within proposed TMCP A. The proposed TMCP A, if approved, will protect the economic interests of the working interest owners and royalty owners of a common reservoir and the production allocation schedule, if approved as proposed by AURORA, ensures an equitable allocation of revenue to the lessors commensurate with the value of their leases. LIST OF INCLUDED EXHIBITS EXHIBIT "A": Shows the proposed TMCPA and the wellbores in the TMCPA. EXHIBIT "B": Well log showing Beluga coal markers in TMC #1. EXHIBIT "C": TMC Technical Report, including Structure Contour Maps and Cross- Sections, as included in the Three Mile Creek Unit PA Application (attached) and including a Confidential Reservoir Information (Beluga). EXHIBIT "F": Prelimary multi-rate flow test analyses of upper and lower completions e CONFIDENTIALITY AURORA requests to the extent possible the geologic and engineering data, presented in this Application be disclosed only to those persons who are required to review and act upon this Application for approval. Otherwise, information presented and discussion of results obtained to date may provide critical competitive information to others regarding the commerciality of this field and other geologic structures in the area. If you require additional information regarding this Application, please contact Mr. Ed Jones, Vice President, Engineering at the number below or the undersigned. Your prompt attention to this matter is sincerely appreciated. Randall D. Jones, CPL Manager, Land & Negotiations rjones@aurorapower.com e Enclosures cc: A. Clifford S. Pfoff . . e Forest Oil Corporation 310 "K" Street Anchorage, Alaska 99501 Attn: Mr. James D. Arlington Land Manager Attn: Kirk McGee Vice President - Real Estate Mr. Mark Myers, Director Mr. Thomas Irwin, Commissioner State of Alaska Department of Natural Resources Division of Oil and Gas 550 West 7th Avenue, Suite 800 Anchorage, Alaska 99501 Cook Inlet Region, Inc 2525 C Street, Suite 500 Anchorage, Alaska 99509-3330 e e aogcc pool rules applicationformal 20 21 20 ZiI OW ðO ZiI ,¡æ 33 Je 3\ ,¡æ ¡; 2; . --,¡I . __80 . __s 11 12 BELUGA RIVER UNIT WELL SPACINGS . . . ~J4urora Gas, I.I.C www.aurorapower.com Alaska Oil and Gas Conservation Commission April 21, 2005 333 W 7th Avenue, Suite No. 100 Anchorage, Alaska 99501-3539 Attn: Mr. Bob Crandell )} Petroleum Geologist '-? I ( D0 y(Ji \J? Aurora Gas, LLC (AUR RA), as Operator of the Three Mile Creek Unit (TMCU), herein submits the following information in support and establishment of initial Field and Pool Rules for the Three Mile Creek Unit. Although full field delineation has not occurred, AURORA has conducted a Pre-Application meeting with the Division of Oil and Gas, Department of Natural Resources (DNR) and the Cook Inlet Region, Inc. (CIRI) to establish the initial Three Mile Creek (TMC) Participating Area (TMCPA). We seek their joint approval since AURORA's proposed TMCPA is comprised of portions of leases granted by both parties; therefore, it is timely to apply for Field and Pool Rules to govern the continued development of hydrocarbon extraction within the TMCU. Exhibit "A" attached hereto shows the proposed TMCP A. RECEIVED APR 2 5 Z005 Gentlemen: . . AI- k 0·, & Gas Cons. Commission RE: 001 Rules ApphcatIOn HIS a I Three Mile Creek Unit Anchorage Kenai Peninsula Borough Cook Inlet, Alaska . / The Three Mile Creek field is located in the central and southern part of the TMCU which is approximately 5 miles west of the Beluga River Unit. Likewise, the proposed TMCPA is located within the southern part of the TMCU. BACKGROUND . AURORA drilled the TMCUNo.1 discovery well to a depth of 8015.6' TVD and 8185' MD at a surface location ofx=286,393.488, y=2,624,191.025 (148' FWL,I,504' FNL) situated in the NW1I4SWl.4 of Section 35, with a bottomhole location of x=285,557.07, y=2,624,171.045 (688' FEL, 1,484' FNL) situated in the NE1I4SE114 of Section 34, both within T13N, Rll W, SM., as shown on Exhibit "A". The well tested gas at potentially commercial rates from six distinct Beluga Formation sand intervals in two separate tests. AURORA hopes to drill at least two (2) delineation gas wells this year in the same Section 34 and letter seeks Alaska Oil and Gas Conservation Commission (AOGCC) approval to do so. Consequently, AURORA respectfully seeks special pool rules be established to govern well spacing based on approximately 60 acres. Pursuant to Regulation 20 AAC, 25.055, the normal statewide spacing requirement for a gas pool of no more than one (1) gas well per governmental section, and such gas wells not being drilled or completed closer than 3,000' feet to any well drilling to or capable of producing from the same Beluga Reservoir or pool not apply to the TMC field AURORA expects to receive its approved pipeline permits on or before May 30, 2005 and commence construction of a 5 mile natural gas gathering line to interconnect with AURORA's Lone Creek gathering line to the south and also install a gas production 10333 Richmond Avenue, Suite 710· Houston, Texas 77042. (713) 977-5799. Fax (713) 977-1347 1400 West Benson Blvd., Suite 410· Anchorage, Alaska 99503. (907) 277-1003. Fax (907) 277-1006 . . · facility at the TMCU #1 well site, henceforward to be designated the TMCU Central Pad. First sales are expected as early as July 1, 2005, Central Pad. First sales are expected as early as July 1, 2005 followed by the commencement of drilling operations for the first of the two (2) delineation gas wells around September 1,2005. RESERVOIR DESCRIPTION · The TMC field will produce dry gas from the Beluga Formation. Gas composition is 98% methane with a specific gravity of 0.565. The Beluga Formation is part of the Kenai Group, which comprises most of the sedimentary fill of the Cook Inlet forearc basin. All rocks of the Kenai Group are of continental origin, with the Beluga Formation representing braided, anastomozing and meandering river systems. Based on clay and heavy mineral studies it is generally believed that the Beluga sediments were derived primarily from the uplifted and metamorphosed Kenai/Chugach terrane to the East with secondary contribution from the emerging Alaska Range in the West and Northwest. Ash layers from the Aleutian Chain volcanoes are found throughout the sediments and are easy to identify preserved in the innumerable, interbedded coal seams. The reservoir is relatively low permeability, ranging from 1-20 md, averaging 5 md. Porosities range from 12-20 %, with an average of 15%. The sandstones have a high proportion oflithic and organic debris with clay content of 18-20 %. The entire reservoir system is a freshwater channel and braided stream environment with severe discontinuity between sands over the areal extent of the structure, as suggested by the difficulty in correlating individual sand beds between the TMCU #1 well and the Superior Three Mile Creek State (TMCS) #1 well, less than one mile away towards the southeast. Similar characteristics are seen at the nearby CP AI-operated Beluga River Unit, where the same Beluga sand is rarely seen by more than 2 or 3 wells. This lenticular and - discontinuous nature makes for a very complex trapping mechanism, although the predominant trapping mechanism is believed to bee structural. A confidential discussion of the Beluga Formation interval is contained on pages 7 through 9 of the TMC Technical Report, attached hereto as Exhibit "C". The TMC field is a North-South trending anticlinal fold with three-way structural closure and fault-dependency on the western side. The easterly-vergent Tyonek Reserve Thrust Fault was penetrated within the TMCU #1 well at approximately 777' MD (758' TVD/ -428' TVDSS), as supported by FMI data. Beds above the fault zone have dips of 70 degrees towards the east, suggesting fault drag, whereas beds below the fault plane have dips of 20 degrees towards the east. Gas readings increased once the fault was crossed, strongly suggesting that gas is trapped against the fault itself, although the first indication of potential Beluga gas pay occurs below the coal marker at 1,700' MD (1,623' TVD/ -1,293' TVDSS). The lowermost potential Beluga gas pay is believed to be at 5,512' MD (5,337' TVD/ -5,008' TVDSS), based on interpretation of log data, especially the DSI data. AURORA failed to recover gas on test below 5,600' MD (5,425' TVD/ - 5,095' TVDSS). There is still considerable uncertainty concerning the productivity of the Beluga reservoirs between the depths of 4,610' MD (4,437' TVD/ - 4,107' TVDSS) and 5,510' MD (5,335' TVD/ -5,005' TVDSS), depending on how the data are interpreted and AURORA intends to collect more data in subsequent wells to determine ifthis is gas productive or a transition zone. · The Beluga gas accumulation at TMCU is believed to share a common lower boundary, where higher saturation gas transitions to lower saturation gas. Individual, . . . discontinuous Beluga sand bodies will likely have separate gas-water contacts within the overall structure with a propensity for more linear and oblate drainage radii, according to the individual channel body orientation, which is unknown at this time, although FMI interpretation suggests deposition from the East and Northeast. RESERVOIR MANAGEMENT Due to the measured low rates from individual Beluga intervals, it will be commercially necessary for AURORA to commingle production from several Beluga intervals whenever possible. Consistent with the proposed single TMCP A, AURORA proposes a single Beluga Pool encompassing all of the currently identified Beluga intervals identified in the TMCU # 1 Well, and also any future new intervals ofthe same age that might be found within the mapped limits of the TMC field from the Beluga (Tsuga 2-3) coal marker observed at 1,700' MD (1,623' TVDI -1,293' TVDSS), as seen on the gamma ray and density logs for the TMCU #1 Well (Exhibit "C" attached hereto) to the Beluga (Tsuga 2-7) coal marker seen at 5,531' MD (5,356' TVDI -5,026' TVDSS), and their respective stratigraphic equivalents across the field at whichever depth they may be encountered in subsequent wells. . To ensure optimal resource recovery, AURORA proposes to limit initial commingled producing intervals to within 2,050' vertical feet. This methodology has application in the tight reservoirs encountered. This tight resource would not otherwise support infill drilling independent of other intervals within a given wellbore, and thus requires contribution from a large gross interval. As depletion occurs over the life of the TMC field and is deemed operationally prudent, AURORA may request expansion of the 2,750' vertical foot limit regarding commingled perforations as a means to increase resource recovery. Additionally, the Beluga intervals are in the ongoing evaluation stages of development. Pay identification and petrophysical limits on resource viability are continually evolving. As a means to advance this understanding, hydraulic fracture stimulations may be employed in the near future in an attempt to further commercialize the moderately low quality reservoir encountered. AURORA is requesting limited restrictions on wellbore spacing as tight spacing is expected necessary to maximize resource recovery which is consistent with the complex nature of this moderately low permeability reservoir. Consequently, AURORA respectfully seeks special pool rules be established to govern well spacing based on approximately 60 acres. Pursuant to Regulation 20 AAC, 25.055, the normal statewide spacing requirement for a gas pool of no more than one (1) gas well per governmental section, and such gas wells not being drilled or completed closer than 3,000' feet to any well drilling to or capable of producing from the same Beluga pool, AURORA respectfully hereby requests these parameters not apply to the TMC field. Summarizing the manner in which the proposed plan will maximize resource recovery is as follows: . · Increasing the number of take points in this moderately low permeability reservOIr; · Improving the unloading of liquid by combining production from multiple tight intervals; · Commercializing a moderately low quality resource otherwise likely to not be . . · recovered; . Lowering the economic threshold of field development, reducing the abandonment flow rates of wells, reducing operating expense, thereby producing longer and recovering more reserves. AURORA further proposes that the annual bottomhole pressure measurement requirement be satisfied by a single key well pressure survey conducted at least once per year. Bottomhole pressure may be computed from surface measurements taken with an accurate pressure gauge provided that it can be accurately extrapolated to bottomhole conditions. The pressure will be referenced to the 2,933' TVD/ 3,070' MD. The Original reservoir pressure at this datum is 1,452 psia. WELLBORE CONSTRUCTION AURORA proposes that subsequent wells drilled in the TMCU Beluga P A will have a minimum surface casing point of +/- 600' TVD and a maximum depth of 1,000' TVD. Additionally, AURORA requests the AOGCC not establish any requirement for installation of subsurface safety valves (SSSVs) in wellbores in the TMC field. AURORA proposes to install a surface safety valve (SSV) on each well that is capable of unassisted flow to surface and further proposes to conduct annual pressure testing of the SSV to maximum anticipated shut-in pressure, so long as this pressure exceeds 1,000 psI. · ADMINISTRATIVE APPROVAL AURORA requests the TMCU Pool Rules allow for Administrative Approval for changes or exceptions filed pursuant to AOGCC regulations. CONCLUSION AURORA requests the proposed TMCU Beluga Pool Rules be approved as submitted. AURORA believes the proposed TMCU Beluga Pool Rules will enable optimal resource recovery, provide for commercial viability and compliment the proposed TMCP A thereby assuring the protection of correlative rights within proposed TMCP A. The proposed TMCP A, if approved, will protect the economic interests of the working interest owners and royalty owners of a common reservoir and the production allocation schedule, if approved as proposed by AURORA, ensures an equitable allocation of revenue to the lessors commensurate with the value of their leases. LIST OF INCLUDED EXHIBITS EXHIBIT "A": Shows the proposed TMCP A and the wellbores in the TMCP A. EXHIBIT "B": Well log showing Beluga coal markers in TMC #1. EXHIBIT "C": TMC Technical Report, including Structure Contour Maps and Cross- Sections, as included in the Three Mile Creek Unit P A Application (attached) and including a Confidential Reservoir Information (Beluga).). · . . . CONFIDENTIALITY AURORA requests to the extent possible the geologic and engineering data, presented in this Application be disclosed only to those persons who are required to review and act upon this Application for approval. Otherwise, information presented and discussion of results obtained to date may provide critical competitive information to others regarding the commerciality of this field and other geologic structures in the area. If you require additional information regarding this Application, please contact Mr. Ed Jones, Vice President, Engineering at the number below or the undersigned. Your prompt attention to this matter is sincerely appreciated. Very Truly Yours, /<O#J(!Ú ~ Randall D. Jones, CPL Manager, Land & Negotiations rjones@aurorapower.com . Enclosures cc: A. Clifford S. Pfoff Forest Oil Corporation 310 "K" Street Anchorage, Alaska 99501 Attn: Mr. James D. Arlington Land Manager Cook Inlet Region, Inc 2525 C Street, Suite 500 Anchorage, Alaska 99509-3330 Mr. Mark Myers, Director Mr. Thomas Irwin, Commissioner State of Alaska Department of Natural Resources Division of Oil and Gas 550 West ih Avenue, Suite 800 Anchorage, Alaska 99501 Attn: Kirk McGee Vice President - Real Estate . aogcc pool rules application '!4 MILE