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Home My WebLink AboutCO 701INDEX CONSERVATION ORDER NO. 701 Ninilchik Unit Ninilchik Field Beluga/Tyonek Gas Pool Kenai Peninsula Borough, Alaska 1. June 11, 2014 2. June 16, 2014 3. June 26, 2014 4. July 2, 2014 5. July 22, 2014 6. September 29, 2014 7. December 3, 3014 Hilcorp's application for the establishment of the initial Field and Pool Rules for the Ninilchik Unit (Reservoir and Geologic Reports held confidential in secure storage) Notice of Public Hearing, Affidavit of Publication, email distribution, and mailings DNR's request for hearing Darwin and Kaye Waldsmith's (public) request for hearing Public hearing transcript, sign -in sheet, and Hilcorp's exhibit: Proposed Field and Pool Rules for the Ninilchik Unit Emails between Hilcorp and AOGCC re: Proposed Errata v2 C -Plan Exemption: Blossom No. 1 INDEX CONSERVATION ORDER NO. 701 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMIVIISSION 333 West 7th Avenue, Suite 100 Anchorage Alaska 99501 Re: THE APPLICATION OF Hilcorp Alaska, ) Docket Number: CO -14-018 LLC for an order for the classification of a ) Conservation Order No. 701 new gas pool and to prescribe pool rules ) for development of the Ninilchik ) Ninilchik Unit Beluga/Tyonek Gas Pool, Ninilchik Unit, ) Ninilchik Field onshore and offshore Kenai Peninsula ) Beluga/Tyonek Gas Pool Borough, Alaska Kenai Peninsula Borough, Alaska September 18, 2014 IT APPEARING THAT: 1. By application dated June 11, 2014, Hilcorp Alaska LLC (Hilcorp), in its capacity as operator of the Ninilchik Unit, requested an order defining a new gas pool, the Ninilchik Unit Beluga/Tyonek Gas Pool (B/TGP), within the Ninilchik Unit (NU) and prescribing rules governing the development and operation of the pool. 2. Pursuant to 20 AAAC 25.540, the Alaska Oil and Gas Conservation Commission (AOGCC) tentatively scheduled a public hearing for July 22, 2014. On June 16, 2014, the AOGCC published notice of the opportunity for that hearing on the State of Alaska's Online Public Notice website and on the AOGCC's website, electronically transmitted the notice to all persons on the AOGCC's email distribution list, and mailed printed copies of the notice to all persons on the AOGCC's mailing distribution list. On June 17, 2014, the AOGCC published the notice in the Anchorage Daily News. 3. AOGCC received requests to hold the public hearing from the State of Alaska Department of Natural Resources, Division of Oil & Gas of the (DOG) and the legal representative for a private landowner. 4. The hearing commenced at 9:OOAM on July 22, 2014, in the AOGCC's offices located at 333 West 7i" Avenue, Anchorage, Alaska. 5. Testimony was received from representatives of the DOG and Hilcorp. 6. The record was closed at the end of the hearing. FINDINGS: 1. Operator: Hilcorp is the operator of the NU. 2. Affected Area: The Affected Area is coincident with the current NU boundaries and lies onshore and offshore along the eastern shore of Cook Inlet from slightly north of the town of Clam Gulch in the north to slightly north of the town of Ninilchik in the South. Development activities occur from several onshore drilling pads using wells having bottomhole locations both onshore and offshore. There are three Participating Areas (PA) currently defined in the NU. From north to south these are: Falls Creek PA, Grassim Conservation Order 701 September 18, 2014 Page 2 of 6 Oskolkoff PA, and Susan Dionne/Paxton PA. The Grassim Oskolkoff PA lies entirely offshore while the other two PAs lie on and offshore. 3. Landowners: The NU comprises lands owned by the State of Alaska, the University of Alaska, the Federal Government, Cook Inlet Region, Inc. (CIRI), and patented fee lands. Not all lands within the boundary of the NU have been committed to the unit. 4. Owner: Hilcorp is 100% working interest owner of all lands committed to the NU. 5. Exploration and Delineation History: Chevron USA drilled the Falls Creek Unit No. 1 discovery well with a surface location on Section 6, Township 1 North, Range, 12 West, Seward Meridian (SM) and a bottomhole location on Section 1, Township 1 North, Range 13 West, SM during 1961. Numerous additional exploratory and delineation wells were drilled before regular production commenced from the NU in 2003. The NU was formed on October 1, 2001, and was expanded on June 30, 2003, to encompass the Falls Creek Unit, formerly administered by the federal government, and to create three initial participating areas, Falls Creek PA, Grassim Oskolkoff PA, and Susan Dionne PA. On December 28, 2007, the Susan Dionne PA was expanded and renamed the Susan Dionne/Paxton PA. 6. Previous AOGCC Orders: AOGCC has issued 29 separate conservation orders for NU. All but one of these were related to spacing exceptions covering 22 unique wells. 7. Pool Identification: The proposed Ninilchik Unit Beluga/Tyonek Gas Pool comprises the gas -bearing intervals common to, and correlating with, the interval between the measured depths (MD) of 1,480 feet in the Paxton #5 well, and 9,600 feet in the Paxton #1 well. Two wells are needed to define the pool due to the lack of well logs over a portion of the pool within the Paxton #1 well. 8. Geology: a. Stratig_ra hhy: Within the Ninilchik Unit, Oligocene- to Miocene -aged, non -marine reservoir sandstones comprise the proposed Ninilchik Unit Beluga/Tyonek Gas Pool. These reservoir sandstones are assigned to the Beluga Formation (Beluga) and Tyonek Formation (Tyonek), in descending stratigraphic order. Reservoir sandstones within these two formations are lenticular in cross-section and laterally discontinuous, the result of deposition in river and stream channels within fluvial or alluvial environments. Within the proposed development area, the combined Beluga-Tyonek interval is approximately 8,000 feet thick. b. Structure: Within the development area, the northeast -trending Ninilchik Anticline measures about 16 miles long and 4 miles wide and is bounded on the west by a high - angle reverse fault. Natural gas has accumulated in three separate areas along the crest of this anticline. These areas are named, from southwest to northeast, Paxton -Dionne, Grassim Oskolkoff, and Falls Creek-Bartolowits, and they are separated from one another by structural saddles or faults. c. Trap Configuration and Seals: Well log and seismic information indicate that the gas accumulations within the Beluga and Tyonek reservoir sandstones are trapped by both structural and stratigraphic elements. These reservoir sandstones are encapsulated in, and separated by, mudstone and siltstone. Conservation Order 701 September 18, 2014 Page 3 of 6 d. Reservoir Size: Hilcorp's analysis of analogue depositional systems suggests the mean channel width of the Beluga-Tyonek fluvial system is approximately 500 feet, with fewer than 15 percent of the channels exceeding 3,000 feet in width.' e. Reservoir Compartmentalization: Hilcorp's analysis of production and well test data suggests approximately 150 acres is the average drainage area for individual gas accumulations within the Beluga and Tyonek. 9. Reservoir Fluid Properties: Gas -sample laboratory analysis reports and formation -gas composition measurements recorded while drilling 3 indicate that Beluga and Tyonek reservoirs within the Ninilchik Unit contain only dry natural gas that consists almost entirely of methane. 10. Well Spacing Waiver Request: Hilcorp requests no gas well spacing restrictions within the affected area, except that no well may be drilled within 1,500 feet of the external boundary of the affected area unless the owner and landowner are the same on both sides of the boundary. CONCLUSIONS: 1. Pool Rules for the development of the Ninilchik Unit Beluga/Tyonek Gas Pool within the Ninilchik Unit are appropriate. 2. The Beluga and Tyonek Formations contain discontinuous sandstone lenses that were deposited in braided to meandering rivers and streams and thus there is little lateral continuity between individual sandstone reservoirs within the proposed pool. 3. Due to the presence of uncommitted tracts within the bounds of the NU, the correlative rights of the landowners of the uncommitted tracts are potentially in jeopardy. 4. Uncommitted tracts within a defined PA have a tract allocation value assigned by DNR. The correlative rights of the landowners of those uncommitted tracts can be protected by establishing escrow accounts to hold revenue attributable to each uncommitted tract until such time as the tract can be committed to unit or some other agreement can be reached between the operator and the landowner. 5. Uncommitted tracts within the unit that are not within a defined PA do not have a tract allocation value assigned to them. The correlative rights of the landowner of such an uncommitted tract cannot be protected by the establishment of an escrow account since there is no means to determine the appropriate tract allocation value for the operator to use to determine how much revenue to put into escrow. 6. Correlative rights of landowners of uncommitted tracts outside of the defined PAs will be protected by adhering to the well spacing requirements of 20 AAC 25.055. ' Prior to this Order, statewide spacing requirements set down in 20 AAC 25.055 governed development within the Ninilchik Unit. 20 AAC 25.055(a)(4) specifies not more than one well may be drilled to and completed in [a] pool on any governmental section, and a well may not be drilled or completed closer than 3,000' to any well drilling to or capable of producing from the same pool. 2 Laboratory analysis reports of gas samples examined: Corea Creek Fed 1 and G Oskolkoff 1. 3 Mud log prints and data examined: Corea Creek Fed 1, Falls Creek 1 RD, Falls Creek 3, Falls Creek 4, G Oskolkoff 1, G Oskolkoff 2, G Oskolkoff 5, G Oskolkoff 7, Ninilchik 1, Paxton 1, Paxton 2, Pearl 1, S Dionne 2, and S Dionne 6. Conservation Order 701 September 18, 2014 Page 4 of 6 NOW THEREFORE IT IS ORDERED: The development and operation of the Ninilchik Unit Beluga/Tyonek Gas Pool is subject to the following rules and the statewide requirements under 20 AAC 25 to the extent not superseded by these rules: Affected Area: Seward Meridian Township & Range Sections Portion s 2 North, 12 West 19-21 & 28-33 All 2 North, 13 West 36 S-1/2 1 North, 12 West 5 NW -1/4 6 All 7 NW -1/4 1 North, 13 West 1&2 All 3 SE -1/4 10-12 All 14 All except that portion lying above the line of mean high tide within the SE -1A 15 All 16 NE -1/4 & SE -1/2 20 NE -1/4 & SE -1/2 21 & 22 All 23 W-1/2, and that portion of the NW -1/4 NE- 1/4lying below the line of mean high tide 27-29 All 30 NE -1/4 & SE -1/2 31-33 All 34 W-1/2 1 North, 14 West 36 SE -1/4 1 South, 14 West 1-2 & 11-14 All 15 SE -1/4 1 South, 13 West 4 W-1/2 NW -1/4 & W-1/2 SW -1A 5-8 All 1 South, 13 West 9 W-1/2 NW -1/4 18 N-1/2 NW -1/4 NE -1/4, N-1/2 NW -1/4, SW - 1/4 NW -1A, NW -1A SE -1A NW -1/4, and NW -1/4 SW -1/4 Conservation Order 701 September 18, 2014 Page 5 of 6 Rule 1 Field and Pool Name The field is the Ninilchik Field. Hydrocarbons underlying the Affected Area and within the interval identified in Rule 2, below, constitute the gas pool named the Ninilchik Beluga/Tyonek Gas Pool. Rule 2 Pool defmition The Ninilchik Beluga/Tyonek Gas Pool comprises the gas -bearing intervals common to and correlating with the interval between the measured depths of 1,480 feet in the Paxton #5 well and 9.600 feet in the Paxton #1 well. Rule 3 Well Spacing There shall be no gas well spacing restrictions within the Affected Area, except: A) No gas well shall be drilled or completed less than 1,500 feet from the exterior boundary of the Affected Area unless the owner and landowner is the same on both sides of the line. B) No gas well shall be drilled or completed less than 1,500 feet from an uncommitted tract within the Ninilchik Unit unless the well and the uncommitted tract both lie within the same Participating Area. Rule 4 Escrowing of Revenue for Uncommitted Tracts The operator shall establish and maintain an interest-bearing escrow account for each uncommitted tract that has production allocated to it. The amount of funds to be deposited into the account each month is the total value of the production allocated to the tract. Rule 5 Reporting Requirements Within 60 days of the effective date of this order the operator shall provide the AOGCC with a complete list of all uncommitted tracts within the Affected Area. This list shall include the landowner(s) name and a legal description for each uncommitted tract. If a tract is within an established Participating Area, the operator shall also indicate which Participating Area the tract lies within, what the tract -allocation value is for that tract, and how that tract -allocation value was created. The operator shall also provide to AOGCC evidence that an escrow account was established for every uncommitted tract. The operator shall notify the AOGCC within 30 days whenever the status of any uncommitted tract changes. Rule 6 Administrative Action Upon proper application, or its own motion, and unless notice and public hearing are otherwise required, the AOGCC may administratively waive the requirements of any rule stated herein or administratively amend this order as long as the change does not promote waste or jeopardize correlative rights, is based on sound engineering and geosciences principles, and will not result in an increased risk of fluid movement into freshwater. Conservation Order 701 September 18, 2014 Page 6 of 6 This order shall expire 5 years after the effective date shown below DONE at Anchorage, Alaska and dated September 18, 2014. OIL Cathy P Foer ter Daniel T. Seamount, Jr. 4� Chair, Commissioner Commissioner TION AND APPEAL NOTICE As provided in AS 31.05.080(a), within 20 days after written notice of the entry of this order or decisi , � � - i further time as the AOGCC grants for good cause shown, a person affected by it may file with the AOGCC an application for reconsideration of the matter determined by it. If the notice was mailed, then the period of time shall be 23 days. An application for reconsideration must set out the respect in which the order or decision is believed to be erroneous. The AOGCC shall grant or refuse the application for reconsideration in whole or in part within 10 days after it is filed. Failure to act on it within 10 -days is a denial of reconsideration. If the AOGCC denies reconsideration, upon denial, this order or decision and the denial of reconsideration are FINAL and may be appealed to superior court. The appeal MUST be filed within 33 days after the date on which the AOGCC mails, OR 30 days if the AOGCC otherwise distributes, the order or decision denying reconsideration, UNLESS the denial is by inaction, in which case the appeal MUST be filed within 40 days after the date on which the application for reconsideration was filed. If the AOGCC grants an application for reconsideration, this order or decision does not become final. Rather, the order or decision on reconsideration will be the FINAL order or decision of the AOGCC, and it may be appealed to superior court. That appeal MUST be filed within 33 days after the date on which the AOGCC mails, OR 30 days if the AOGCC otherwise distributes, the order or decision on reconsideration. In computing a period of time above, the date of the event or default after which the designated period begins to run is not included in the period; the last day of the period is included, unless it falls on a weekend or state holiday, in which event the period runs until 5:00 n.m. on the next day that does not fall on a weekend or state holiday. Singh, Angela K (DOA) From: Carlisle, Samantha J (DOA) Sent Friday, September 19, 2014 9:04 AM To: Ballantine, Tab A (LAW); Bender, Makana K (DOA); Bettis, Patricia K (DOA); Brooks, Phoebe L (DOA); Carlisle, Samantha J (DOA); Colombie, Jody J (DOA); Crisp, John H (DOA); Davies, Stephen F (DOA); Eaton, Loraine E (DOA); Ferguson, Victoria L (DOA); Foerster, Catherine P (DOA); Frystacky, Michal (DOA); Grimaldi, Louis R (DOA); Guhl, Meredith D (DOA); Herrera, Matthew F (DOA); Hill, Johnnie W (DOA); Hunt, Jennifer L (DOA); Jones, Jeffery B (DOA); Kair, Michael N (DOA); Mayberry, David J (DOA); Mumm, Joseph (DOA sponsored); Noble, Robert C (DOA); Paladijczuk, Tracie L (DOA); Pasqual, Maria (DOA); Regg, lames B (DOA); Roby, David S (DOA); Scheve, Charles M (DOA); Schwartz, Guy L (DOA); Seamount, Dan T (DOA); Singh, Angela K (DOA); Wallace, Chris D (DOA); (michael j.nelson@conocophillips.com); AKDCWeIIIntegrityCoordinator, Alexander Bridge; Andrew Vandedack; Anna Raft, Barbara F Fullmer, bbritch; bbohrer@ap.org; Barron, William C (DNR); Bill Penrose; Bill Walker, Bob Shavelson; Brian Havelock; Burdick, John D (DNR); Cliff Posey, Colleen Miller, Corey Cruse; Crandall, Krissell; D Lawrence; Daryl J. Kleppin; Dave Harbour, Dave Matthews; David Boelens; David Duffy, David Goade; David House; David McCaleb; David Scott, David Steingreaber, David Tetta; Davide Simeone; ddonkel@cfl.rr.com; Dean Gallegos; Delbridge, Rena E (LAA); Donna Ambrur, Dowdy, Alicia G (DNR); Dudley Platt; Ed Jones; Elowe, Kristin; Evans, John R (LDZX); Francis S. Sommer, Frank Molli; Gary Schultz (gary.schultz@alaska.gov); George Pollock; ghammons; Gordon Pospisil; Gorney, David L; Greg Duggin; Gregg Nady; gspfoff; Jacki Rose, Jdarlington Darlington@gmail.com); Jeanne McPherren; Jerry Hodgden; Jerry McCutcheon; Jim White; Joe Lastufka; news@radiokenai.com; John Adams; Easton, John R (DNR); John Garing; Jon Goltz; Jones, Jeffrey L (GOV); Juanita Lovett; Judy Stanelq� Houle, Julie (DNR); Julie Little; Kari Moriarty; Keith Wiles; Kelly Sperback; Klippmann; Gregersen, Laura S (DNR); Leslie Smith; Lisa Parker, Louisiana Cutler, Luke Keller, Marc Kovak; Dalton, Mark (DOT sponsored); Mark Hanley (mark.hanley@anadarko.com); Mark P. Worcester, Mark Wedman; Kremer, Marguerite C (DNR); Michael Jacobs; Michael Moora; Mike Bill; mike@kbbi.org; Mikel Schultz; Mindy Lewis; MJ Loveland; mjnelson; mkm7200; Morones, Mark P (DNR); knelson@petroleumnews.com; Nichole Saunders; Nick W. Glover, Nikki Martin; NSK Problem Well Supv; Oliver Stemicki; Patty Alfaro; Decker, Paul L (DNR); Paul Mazzolini; Pike, Kevin W (DNR); Randall Kanady, Randy L Skillem; Randy Redmond; Renan Yanish; Robert Brelsford; Ryan Tunseth; Sandra Haggard; Sara Leverette; Scott Griffith; Shannon Donnelly, Sharmaine Copeland; Sharon Yarawsky, Shellenbaum, Diane P (DNR); Slemons, Jonne D (DNR); Smart Energy Universe; Smith, Kyle S (DNR); Sondra Stewman; Stephanie Klemmer, Steve Kiorpes; Moothart, Steve R (DNR); Suzanne Gibson; sheffield@aoga.org; Tania Ramos; Ted Kramer, Davidson, Temple (DNR); Terence Dalton; Teresa Imm; Thor Cutler, Tim Mayers, Tina Grovier, Todd Durkee; Tony Hopfinger, trmjrl; Tyler Senden; Vicki Irwin; Vinnie Catalano; Walter Featherly, yjrosen@ak.net, Aaron Gluzman; Aaron Sorrell; Ajibola Adeyeye; Alan Dennis; Andrew Cater; Anne Hillman; Bruce Williams; Bruno, Jeff J (DNR); Casey Sullivan; David Lenig; Diane Richmond; Donna Vukich; Eric Lidji; Erik Opstad; Gary Orr, Smith, Graham O (PCO); Greg Mattson; Hans Schlegel; Heusser, Heather A (DNR); Holly Pearen; James Rodgers; Jason Bergerson; Jennifer Starck; jill.a.mcleod@conocophillips.com; Jim Magill; Joe Longo; John Martineck; Josh Kindred; Kenneth Luckey, King, Kathleen J (DNR); Laney Vazquer, Lois Epstein; Longan, Sara W (DNR); Marc Kuck; Marcia Hobson; Steele, Marie C (DNR); Matt Armstrong; Matt Gill; Franger, James M (DNR); Morgan, Kirk A (DNR); Pat Galvin; Peter Contreras; Richard Garrard; Richard Nehring; Robert Province; Ryan Daniel; Sandra Lemke; Pexton, Scott R (DNR); Peterson, Shaun (DNR); Pollard, Susan R (LAW); Talib Syed; Terence Dalton; Todd, To: Richard 1 (LAW); Tostevin, Breck C (LAW); Wayne Wooster, Wendy Wollf; William Hutto; William Van Dyke Subject: Conservation Order 701 (Ninilchik Unit) Attachments: co701.pdf Please see attached. Samantha CarCisle Executive Secretary II Alaska Oil and Gas Conservation Commission 333 West 7th Avenue, Suite 100 Anchorage, AK 99501 (907) 793-1223 (phone) (907) 276-7542 (fax) CONFIDENTIALITY NOTICE. This e-mail message, including any attachments, contains information from the Alaska Oil and Gas Conservation Commission (AOGCC), State of Alaska and is for the sole use of the intended recipient(s). It may contain confidential and/or privileged information. The unauthorized review, use or disclosure of such information may violate state or federal law. If you are an unintended recipient of this e-mail, please delete it, without first saving or forwarding it, and, so that the AOGCC is aware of the mistake in sending it to you, contact Samantha Carlisle at (907) 793-1223 or Samantha.Carlisle@alaska.gov. CIRI Land Department James Gibbs Jack Hakldla Post Office Box 93330 Post Office Box 1597 Post Office Box 190083 Anchorage, AK 99503 Soldotna, AK 99669 Anchorage, AK 99519 Bernie Karl M Recycling Inc. Post Office Box 58055 Fairbanks, AK 99711 George Vaught, Jr. Post Office Box 13557 Denver, CO 80201-3557 David W. Duffy Landman Hilcorp Alaska, LLC Post Office Box 244027 Anchorage, AK 99524-4027 Gordon Severson 3201 Westmar Cir. Anchorage, AK 99508-4336 Richard Wagner Post Office Box 60868 Fairbanks, AK 99706 Penny Vadla 399 W. Riverview Ave. Soldotna, AK 99669-7714 Darwin Waldsmith Post Office Box 39309 Ninllchik, AK 99639 Angela K. Singh THE STATE 'ALASKA GovERN(lR SFIAN PARNHA December 3, 2014 Kathryn Kaufman Drilling Compliance Specialist Hilcorp Alaska, LLC 3800 Centerpoint Drive, Suite 100 Anchorage, AK 99503 Department of Environmental Conservation DIVISION Or SPILL PREVENTION & RESPONSE 1NDUS'I'RY PREPAREDNESS PROGRAM Exploration, Production and Refineries 555 Cordova Streei Anchorage, Alaska 99501 Main: 907.269.3094 Fox: 907.269,7687 File No: 305.05 (Natural Gas ExmTtion) Subject: Exemption from Oil Discharge Prevention and Contingency Plan and Financial Responsibility Requirements for Blossom No. 1 Exploratory Gas Well, Cook Inlet, Alaska Dear Ms. Kaufman: The Alaska Department of Environmental Conservation (department) received your December 1, 2014 letter requesting a natural gas exemption for the Blossom #1 exploratory gas well. Hilcorp Alaska, LLC (Hilcorp) previously requested that the Alaska Oil and Gas Conservation Commission (AOGCC) evaluate the likelihood that the well would penetrate a formation capable of flowing oil to the ground surface. AOGCC responded with its determination in a November 1. 8, 2014 letter (attached) in accordance with AS 31.05.0300). Based on AOGCC's determination, the department is issuing an exemption from Oil Discharge Prevention and Contingency Plan (plan) and Financial Responsibility (FR) requirements. AOGCC reviewed Conservation Order No. 701, which defines the Ninilchik Unit Beluga/Tyonek Gas Pool, and data from other wells in the vicinity. These records provide reliable evidence of the geological, reservoir, and reservoir fluid properties of the formations that Blossom #1 will penetrate. AOGCC's evaluation demonstrates with reasonable certainty that the Blossom #1 exploratory gas well will not penetrate a formation capable of flowing oil to the ground surface provided the well is drilled no deeper than the base of the Beluga/Tyonek Gas Pool as defined in the Paxton No. 1 well. Based upon AOGCC's evaluation and determination, the department hereby finds that the Blossom #1 exploratory gas well meets the standards for exemption as a natural gas exploration facility under AS 46.04.050(c) and is exempt from plan and FR requirements found in AS 46.04.030 and AS 46.04.040. Be advised that should Hilcorp penetrate a formation capable of flowing oil to the ground surface during the drilling of this well, operations must immediately be suspended and the department must be immediately notified. Hilcorp must obtain plan and FR approval by the department prior to Kathryn Kaufman • 2 is December 3, 2014 Hilcorp Alaska, LLC proceeding. This exemption does not relieve Hilcorp of the responsibility for securing other federal, state, or local approvals or permits. Hilcorp is still required to comply with all other applicable laws. APPEAL: This is a final decision. Aggrieved persons with standing may appeal this decision to the Alaska Superior Court within 30 days as provided by the Alaska Rules of Appellate Procedure. If you have any questions, please contact Laurie Silfven at (907) 269-7540 or laurie.silfvcn@alaska..gov. Graham Wood Acting Program Manager Attachment. AOGCC November 18, 2014 letter Electronic cc: Becky Spiegel, ADEC Chris Pace, ADEC Steve Russell, ADEC Mike Evans, ADEC Steve Davies, AOGCC Jody Colombie, AOGCC Vinnie Catalano, CIRCAC Bob Shavelson, Cook Inletkeeper THE STATE o1A% LASKA ( OVERNOR SEAN PARNUL William J. Britt Environmental Manager Hilcorp Alaska, LLC 3800 Centerpoint Drive, Suite 100 Anchorage, AK 99503 Alaska a Oil and Gas C'O:nservattun (]t:'a;it"1�` ASS:lt:li"i 333 West Seventh Avenue Anchorage, Alaska 99501-3572 433 RECEIVED 7.2-16: s`` November 18, 2014 NOV 1 12014 01x4 Department of Ms. Laurie Si avironmentai Consen Alaska Department o - nvtronn Conservation Industry Preparedness Program 555 Cordova Street Anchorage, Alaska 99501 Re: Request for evaluation of the likelihood that the Blossom No. 1 well will penetrate formations capable of flowing oil to the ground surface Dear Mr. Britt and Ms. Silfven: By letter received September 26, 2014, Hilcorp Alaska, LLC (Hilcorp) requested the Alaska Oil and Gas Conservation Commission (AOGCC) evaluate the likelihood that Hilcorp's proposed Blossom No. I well (Blossom No. 1) may penetrate a formation capable of flowing oil to the ground surface and issue a determination based on the results of that evaluation to the Alaska Department of Environmental Conservation's (ADEC). Hilcorp's letter states that Blossom No. 1 will drill into gas reservoirs within the Beluga Formation, the upper portion of the Tyonek. Formation, and the middle portion of the Tyonek Formation, in descending stratigraphic order. As planned, Blossom No. 1 will reach total depth within the middle Tyonek Formation. The proposed Blossom No. 1 well and all wells discussed herein are located on the east side of Cook Inlet Basin, Alaska. Results of This Evaluation Based on the information reviewed, the AOGCC concludes that it is highly unlikely that Blossom No. 1 will penetrate a formation capable of flowing oil to the ground surface, provided the well is drilled no deeper than the base of the Beluga/Tyonek Gas Pool as defined in the Paxton No. I well.* Documents Reviewed For this evaluation, the AOGCC reviewed: 1. Mud log, well history, well log, and well test records from wells Falls Creek No. 2, Grassim Oskolkoff No. 1, Clam Gulch No. 1-X, Corea Creek No. 1, Falls Creek Unit No. 1, Falls Creek No. 43-06, Abalone No. 1, and Clam Gulch Unit No. 1; AOGCC Conservation Order No. 701, Rule 2. Mi. Britt and Ms. Silfven November 18. 2014 P ,e, of4 CookInlet 1 Clam Mulch Lhiit i balone Nlii. _ 0-- Nimfichik Clani Gulch No! 1-X Falls Creek Unit No". I �; Fa11. Cr 10, 0� C"Lirea C-reek}Nu: 1 (� Q Blutssoin No. 1 G. Oskplkoff No. Falb Creek; No. 1 well it 01 mile l terupt with thC roximate heyte�ye atiea- Index Map for the Blossom No. 1 Area, Onshore Cook Inlet Basin 2. Hilcorp's request and the supporting documents and correspondence; and 3. Conservation Order No. 701, which defines the Ninilchik Unit, Beluga/Tyonek Gas Pool. These records provide reliable evidence of the geological, reservoir and reservoir fluid properties of the geologic formations that Blossom No. 1 will penetrate. Findin s 1. Blossom No. l will be drilled from a new, onshore drill site to an offshore bottom -hole location near the center of the Ninilchik Unit. 2. The geologic column of interest in the vicinity of Blossom No. 1 comprises, in descending stratigraphie order, the Sterling, Beluga, Tyonek, Hemlock and West Foreland Formations. 3. As defined in Conservation Order No. 701, the Beluga/Tyonek Gas Pool within the Ninilchik Unit encompasses the Beluga Formation and the upper and middle portions of the Tyonek Formation (upper Tyonek and middle Tyonek). Mr. Britt and Ms. 5ilfven • November 18, 2014 Page 3 of 4 4. Well records and production data demonstrate that the Ninilchik Unit, Belugaffyonek Gas Pool contains only dry natural gas that consists almost entirely of methane.t# As planned, Blossom No. 1 will target reservoirs within the Beluga/Tyonek Gas Pool in a portion of the northeast -trending Ninilchik anticline structure that is structurally separated from the Grassim Oskolkoff gas accumulation, which lies directly to the southwest, and from the Falls Creek gas accumulation. which lies directly to the northeast. 6. Bight wells near Blossom No. 1 penetrate the same geologic sections and have mud -logging records. They are, from southwest to northeast: Falls Creek No. 2, Grassim Oskolkoff No. 1, Clam Gulch No. 1-X, Corea Creek No. 1, Falls Creek Unit No. 1, Falls Creek No. 43-06, Abalone No. 1, and Clam Gulch Unit No. 1. Evaluations of the mud log, well history, well log, and well test records for Falls Creek No. 2, Grassim Oskolkoff No. 1, Clam Gulch No. 1-X, Corea Creek No. 1, Falls Creek Unit No, 1, Falls Creek No. 43-06, Abalone No. 1, and Clam Gulch Unit No. l confirm that the Sterling Formation and the Beluga/Tyonek Gas Pool contain natural gas with only- scattered, trace amounts of immobile liquid hydrocarbons. 8. Gas chromatograph measurements recorded while drilling the nearby Grassim Oskolkoff No. 1 and Clam Gulch No. 1 exploratory wells confirm that the Sterling Formation and the Beluga/Tyonek Gas Pool contain only natural gas, which is predominantly methane. 9. Evaluations of the mud log, well history, and well test records for Clam Gulch No. l -X, Falls Creek Unit No. 1, and Clam Gulch Unit No. 1 suggest that the geologic formations underlying the Beluga/Tyonek Gas Pool (lower portion of the Tyonek (lower Tyonek), Hemlock, and West Foreland) may contain small amounts of liquid hydrocarbons and tar. Conclusions Based on an evaluation of the documents and information referenced above, the AOGCC concludes: l , Within the Ninilchik Unit, the Sterling Formation, the Beluga Formation, the upper to middle portions of the Tyonek Formation and the Beluga/Tyonek Gas Pool contain natural gas with only scattered, trace amounts of immobile, liquid hydrocarbons; 2. The underlying lower Tyonek, Hemlock, and West Foreland may contain mobile, liquid hydrocarbons; and 3. This evaluation assumes the Blossom No. 1 well will be drilled no deeper than the stratigraphic equivalent of the base of the Beluga/Tyonek Gas Pool as defined in Conservation Order No. 701. The AOGCC has not evaluated the likelihood the Blossom No. 1 will penetrate a formation capable of flowing oil to the ground surface if if is drilled any deeper than the base of the Beluga/Tyonek Gas Pool. t Conservation Order No. 701, Finding 9. z AOGCC RBDMS production database, October 23, 2014. Mr. Britt and Ms. Silfven November 18, 2014 Page 4 of 4 Based on these reasons, it is highly unlikely that the proposed Blossom No. 1 development well will penetrate any formation capable of flowing oil to the ground surface if drilled no deeper than the base of the Beluga/Tyonek Gas Pool as defined in the Paxton No. I well within Conservation Order No. 701. Please call Mr. Steve Davies at (907) 793-1224 if you have questions concerning this determination. a/2 Cathy . Foerster Chair, Commissioner Sincerely, Daniel T. Seamount, Jr Commissioner Paayberr Commissioner RECONSIDERATION AND APPEAL. NOTICE As provided in AS 31.05.080(x), within 20 days after written notice of the entry of this order or decision, or such further time as the AOGCC grants for good cause shown, a person affected by it may file with the AOGCC an application for reconsideration of the matter determined by it. if the notice was mailed, then the period of time shall be 23 days. An application for reconsideration must set out the respect in which the order or decision is believed to be erroneous. The AOGCC shall grant or refuse the application for reconsideration in whole or in part within 10 days after it is filed. Failure to act on it within 10 -days is a denial of reconsideration. If the AOGCC denies reconsideration, upon denial, this order or decision and the denial of reconsideration are FiNAL and may be appealed to superior court. The appeal MUST be filed within 33 days after the date on which the AOGCC mails, OR 30 days if the AOGCC otherwise distributes, the order or decision denying reconsideration, UNLESS the denial is by inaction, in which case the appeal MUST be filed within 40 days after the date on which the application for reconsideration was filed. if the AOGCC grants an application for reconsideration, this order or decision does not become final, Rather, the order or decision on reconsideration will be the FINAL order or decision of the AOGCC, and it may be appealed to superior court. That appeal MUST be filed within 33 days after the date on which the AOGCC mails, OR 30 days if the AOGCC otherwise distributes, the order or decision on reconsideration. As provided in AS 31.05.080(b), "(tlhe questions reviewed on appeal are limited to the questions presented to the AOGCC by the application for reconsideration" In computing a period of time above, the date of the event or default after which the designated period begins to run is not included in the period; the last day of the period is included, unless it falls on a weekend or state holiday, in which event the period runs until 5:00 p.m. on the next day that does not fall on a weekend or state holiday. Colombie, Jody J (DOA) From: Roby, David S (DOA) Sent: Monday, September 29, 2014 4:24 PM To: David Duffy; Davies, Stephen F (DOA); Colombie, Jody J (DOA) Cc: Kevin Tabler; Larry Greenstein Subject: RE: co701 - proposed errata v2 David, The changes you propose are too substantial to be handled via an errata/corrected order. Errata/corrected orders are reserved for minor corrections (i.e. correcting the affected area for the three sections you noted where we screwed up the legal description would be an acceptable errata) or when a minor clarification is in order (i.e. the change we made earlier this year on the Kenai Gas Field order to clarify that the property boundary for spacing exceptions was the external boundary of the affected area and not internal property boundaries within that area). Proposing a wholesale rewrite of one finding and most of our conclusions and rules goes well beyond what can be accomplished via an errata. You'll need to submit a formal request that we amend the order and provide supporting reasoning/documentation for the changes you're proposing. Regards, Dave Roby (907) 793-1232 CONFIDENTIALITY NOTICE: This e-mail message, including any attachments, contains information from the Alaska Oil and Gas Conservation Commission (AOGCC), State of Alaska and is for the sole use of the intended recipient(s). It may contain confidential and/or privileged information. The unauthorized review, use or disclosure of such information may violate state or federal law. If you are an unintended recipient of this e-mail, please delete it, without first saving or forwarding it, and, so that the AOGCC is aware of the mistake in sending it to you, contact Dave Roby at (907)793-1232 or dave.robv@alaska.gov. From: David Duffy [mailto:dduffy@hilcorp.com] Sent: Monday, September 29, 2014 11:41 AM To: Davies, Stephen F (DOA); Roby, David S (DOA); Colombie, Jody J (DOA) Cc: Kevin Tabler; Larry Greenstein Subject: co701 - proposed errata v2 Dave, Steve & Jody, As a follow-up to our last meeting, I've attached draft language to reflect Hilcorp's proposed changes Conservation Order 701. Because the rules have only recently been issued, and no actions have been taken, it's my understanding that AOGCC can issue an errata/corrected decision. I'd be glad to follow-up with another meeting to discuss details behind our proposed language and the procedural path forward. Best regards, David Duffy, Landman Hilcorp Alaska, LLC Direct: 907-777-8414 Cell: 907-301-2629 dduffv@hilcorp.com This email may contain confidential and / or privileged information and is intended for the recipient(s) only. In the event you receive this message in error, please notify me and delete the message. #5 1 ALASKA OIL AND GAS CONSERVATION COMMISSION 2 3 Before Commissioners: Cathy Foerster, Chair 4 Daniel T. Seamount 5 6 In the Matter of Hilcorp Alaska, ) 7 LLC's Application for Pool Rules ) 8 for Ninilchik, Kenai Peninsula. ) 9 ) 10 Docket No.: CO 14-018 11 12 ALASKA OIL and GAS CONSERVATION COMMISSION 13 Anchorage, Alaska 14 15 July 22, 2014 16 9:00 o'clock a.m. 17 18 VOLUME I 19 PUBLIC HEARING 20 21 BEFORE: Cathy Foerster, Chair 22 Daniel T. Seamount, Commissioner 23 1 TABLE OF CONTENTS 2 3 Opening remarks by Chair Foerster 03 4 Remarks by Ms. Houle 04 5 Remarks by Mr. Duffy 22 6 Remarks by Mr. Buthman 29 7 Remarks by Mr. Kanyer 39 0a 1 P R O C E E D I N G S 2 (On record - 8:58 a.m.) 3 CHAIR FOERSTER: I'll call this hearing to 4 order. Today is July 22nd, 2014, it is just a little 5 before 9:00 a.m. We are located at the offices of the 6 Alaska Oil and Gas Conservation Commission at 333 West 7 Seventh Avenue, Anchorage, Alaska. I'm Cathy Foerster, 8 the Chair of the Commission and to my left is 9 Commissioner Dan Seamount. And next time we have a 10 hearing there will actually be someone to my right. 11 We're meeting today in reference to Docket No. 12 CO -14-018, Hilcorp Alaska, LLC, referred to in the 13 future as Hilcorp, has applied for pool rules for the 14 Ninilchik unit located on the Kenai Peninsula, Alaska 15 in conformance with 20 AAC 25.520. 16 Computer Matrix will be recording the 17 proceedings. You can get a copy of the transcript from 18 Computer Matrix. 19 I want to remind you if you testify make sure 20 both of the microphones are turned on and try to speak 21 into both of them so that both the court reporter can 22 hear you and capture what you said and the folks in the 23 back of the room can hear you. 24 We don't have anyone clamoring to testify, but 25 before we start we have a couple of questions that we 3 1 need to answer that will shape the direction of the 2 rest of the hearing. The first set of questions if for 3 DNR. So is there a DNR representative who's going to 4 answer my questions? And if you -- as you come up make 5 sure the mics are turned on, try to talk into both of 6 them and introduce your name -- you know, introduce 7 yourself by full name and who you work for. 8 MS. HOULE: My name is Julie Houle, I'm a 9 petroleum geologist with the Division of Oil and Gas. 10 I've been there about 17 and a half years and my area 11 of..... 12 CHAIR FOERSTER: Oh, we're not going to ask you 13 technical questions so you don't have -- we don't have 14 to..... 15 MS. HOULE: Okay. 16 CHAIR FOERSTER: You can tell us anything you 17 want, but it's not necessary. 18 MS. HOULE: Okay. Can I just read a couple 19 things we prepared to say..... 20 CHAIR FOERSTER: Well, sure. 21 MS. HOULE: .....and then -- if that's all 22 right with you? 23 CHAIR FOERSTER: That's fine. 24 MS. HOULE: Okay. So just wanted to say, we 25 have a few remarks, the reason why we requested a pool 0 1 rules hearing and we just believe it's a valuable 2 opportunity for information relevant to this 3 application to be introduced into the public realm. 4 The department has an obligation to protect all parties 5 of interest in unitization matters and it is important 6 for these parties to have the ability to assess and 7 utilize public information to protect their rights and 8 interests as well as comment upon what is proposed. 9 And there are three reasons why we're asking -.- 10 why we requested a public hearing. The first reason 11 was in regards to the diverse mineral ownership of the 12 Ninilchik unit and the surrounding acreage to the east 13 of the unit. As drilling progresses to the east of the 14 unit's pad locations there's a network of complicated 15 private mineral right ownership which could potentially 16 result in issues regarding correlative rights and 17 production allocation. As a result DNR feels that 18 hearing is appropriate and beneficial to publicly 19 address these issues. 20 The second reason involves well spacing and 21 spacing exceptions. Because Hilcorp is actively 22 drilling many wells throughout the Ninilchik unit prior 23 to reconfiguring the unit and changing the size of 24 participating areas it is the state's responsibility to 25 protect correlative rights. Once AOGCC has established 5 1 pool rules the need for many of Hilcorp's spacing 2 exceptions with the unit will go away. However AOGCC 3 will still likely need to adjudicate well spacing 4 applications that encroach on boundaries where the 5 ownership is different. 6 The third reason is the proposed commingling of 7 new production from the Beluga formation with existing 8 Tyonek formation production. Hilcorp is currently 9 delineating the error (ph) limit of productive Beluga 10 formation within the Ninilchik unit. Since Tyonek 11 production is unitized and the Beluga production is not 12 commingling production from both formations raises the 13 questions of forming two pools or one as Hilcorp has 14 proposed. It does however simplify the problem of 15 allocating production to each formation. 16 The Ninilchik unit from a reservoir and mineral 17 ownership perspective is one of the more complex units 18 in Alaska. The department recently met with Hilcorp to 19 discuss DNR's questions about the application and they 20 provided a greater understanding of Hilcorp's proposed 21 pool rules and their future plans for drilling and 22 developing the unit area. We appreciate Hilcorp's 23 willingness to meet with DNR and we are generally 24 supportive of their pool rules application. 25 CHAIR FOERSTER: Okay. So the first thing you lei 1 said was that you felt it was important that 2 information get into the public realm. Have you looked 3 at the public record to see what has been submitted? 4 MS. HOULE: I looked at what Hilcorp gave us. 5 So I've looked..... 6 CHAIR FOERSTER: But you haven't come over here 7 and looked at our files.... 8 MS. HOULE: I have not. 9 CHAIR FOERSTER: .....to see what is available 10 to the public..... 11 MS. HOULE: I have not. 12 CHAIR FOERSTER: .....that the public can just 13 come into the building and read for themselves rather 14 than have us read it to them? 15 MS. HOULE: Yes. 16 CHAIR FOERSTER: So you don't know what that 17 is? 18 MS. HOULE: I have not looked..... 19 CHAIR FOERSTER: Okay. 20 MS. HOULE: .....at your public record. 21 CHAIR FOERSTER: All right. And you need to 22 protect all parties. Within the area affected by this 23 proposed rule what parties are not protected? 24 MS. HOULE: Well, there's a lot of mineral 25 ownerships on the east side that are..... 7 1 CHAIR FOERSTER: In the unit? 2 MS. HOULE: .....just outside the unit that are 3 private ownerships. 4 CHAIR FOERSTER: But these rules won't impact 5 anything outside the unit, you're aware of that, and 6 they will honor the statewide regulations on 7 encroachment to the edges of the unit, you're aware of 8 that? 9 MS. HOULE: Right. And..... 10 CHAIR FOERSTER: Okay. 11 MS. HOULE: Yeah. 12 CHAIR FOERSTER: Okay. So your concern about 13 diverse ownership and correlative rights is not within 14 the unit, it's outside the unit? 15 MS. HOULE: It's outside the unit as..... 16 CHAIR FOERSTER: Okay. 17 MS. HOULE: .....as the wells get drilled 18 closer and closer to the eastern unit boundary. 19 CHAIR FOERSTER: Okay. Does the unit boundary 20 reflect the reservoir boundary? 21 MS. HOULE: Not exactly because the -- 22 Hilcorp's done a lot more drilling and is extending the 23 extents of the reservoir. 24 CHAIR FOERSTER: So..... 25 MS. HOULE: So the answer is I don't know, but E 1 they've done a lot of drilling. 2 CHAIR FOERSTER: Okay. 3 MS. HOULE: So potentially the size of the unit 4 and the participating -- current participating areas 5 will be reconfigured..... 6 CHAIR FOERSTER: Okay. You..... 7 MS. HOULE: .....once they complete their 8 drilling. 9 CHAIR FOERSTER: Okay. And you commented that 10 it's a complex unit. What -- describe the complexities 11 and how they are impacted by this hearing? 12 MS. HOULE: Because it's a fluvial sandstone 13 system and the sands are discontinuous and of various 14 thicknesses and various lengths. It's -- you may have 15 a channel that's, you know, only a few feet wide or you 16 may have one that extends for a while so depending on 17 your spacing you may or may not get every sand that's 18 potentially productive. 19 CHAIR FOERSTER: So you need -- so how does 20 eliminating spacing requirements jeopardize the 21 ultimate recovery that you just described being 22 concerned about? 23 MS. HOULE: Well, it wouldn't. It would help 24 you-all..... 25 CHAIR FOERSTER: Okay. I 1 MS. HOULE: .....make it better. 2 CHAIR FOERSTER: Okay. 3 MS. HOULE: I mean, it would help let them do 4 their business a lot easier without..... 5 CHAIR FOERSTER: So it's a good thing? 6 MS. HOULE: It's a good thing, yes. 7 CHAIR FOERSTER: I'm sorry, I didn't let you 8 ask the questions first and I should have been a 9 gentleman. Do you have questions for Ms. Houle? 10 COMMISSIONER SEAMOUNT: You've been asking most 11 of the questions. I guess one of the questions you hit 12 on was the ownership outside the pool that we're 13 talking about. I think I understand that the pool 14 we're talking about would be contained entirely within 15 the unit; is that correct? 16 MS. HOULE: I don't know. 17 CHAIR FOERSTER: So..... 18 COMMISSIONER SEAMOUNT: I guess we'd have to 19 ask Hilcorp that question because if it's contained 20 entirely within the pool then the concerns about 21 correlative rights would probably not be our concern, 22 it would be more DNB's concern; is that correct, 23 because you would -- you would handle the over rights 24 and the royalties within the unit, correct? 25 MS. HOULE: Right. And with the spacing 10 1 exceptions will wells drilled near the eastern unit 2 boundary that -- when we draw the 1,500 or 3,000 foot 3 circle goes outside the unit then it would be the -- 4 you know, the landowners..... 5 COMMISSIONER SEAMOUNT: Right. 6 MS. HOULE: .....or mineral owners on the east 7 side. 8 COMMISSIONER SEAMOUNT: The spacing exceptions 9 that we would be concerned about in these pool rules 10 would have nothing to do with encroaching on the 11 boundaries of the unit, they would be just within the 12 ownership boundaries within the unit, not on the 13 boundaries of the unit? 14 MS. HOULE: Yes. 15 COMMISSIONER SEAMOUNT: So I think the concerns 16 that you're having right now would be your concerns, 17 they're not AOGCC's concerns. 18 CHAIR FOERSTER: And wouldn't be addressed by 19 whatever we do in this hearing. 20 COMMISSIONER SEAMOUNT: Right. And we'd have 21 to -- if it would come to that we'd have to, you know, 22 go back to our original, you know, the way we would do 23 things, that would -- we would have to address each one 24 individually and get you guys back involved on 25 individual wells. 11 1 MS. HOULE: Right. And that is the case with 2 all the spacing exceptions now within the unit, spacing 3 exception being unlimited would help the drilling and 4 then the periphery of the unit you would -- we'd still 5 have to -- they'd still have to apply for a spacing 6 exception. 7 COMMISSIONER SEAMOUNT: That's correct. 8 MS. HOULE: Depending on what spacing you -all 9 decide is appropriate for drilling, you know, near the 10 edge of the unit. 11 CHAIR FOERSTER: We're not touching the..... 12 COMMISSIONER SEAMOUNT: Well, what -- I think 13 the reason for this hearing is to do away with a 14 majority of the spacing exceptions that are just..... 15 CHAIR FOERSTER: Inter -wound. 16 COMMISSIONER SEAMOUNT: .....inter -unit, not 17 edge of the unit. 18 MS. HOULE: Yes. 19 COMMISSIONER SEAMOUNT: So it would do away 20 with the majority of the routine spacing exceptions 21 that really don't make much of a difference. 22 MS. HOULE: Yeah, I think -- I understand your 23 point. 24 COMMISSIONER SEAMOUNT: Does that make some of 25 your concerns go away? 12 1 MS. HOULE: Yeah, and we'll still have to look 2 at spacing exceptions near the edge of the unit. 3 COMMISSIONER SEAMOUNT: Exactly. And we always 4 would do that. 5 MS. HOULE: Yeah 6 CHAIR FOERSTER: 7 those..... Yeah. That doesn't eliminate 8 MS. HOULE: No. 9 CHAIR FOERSTER: .....this proposed rule does 10 not eliminate those. 11 MS. HOULE: Right. 12 CHAIR FOERSTER: Okay. So other than that 13 concern which isn't changing does DNR still have any 14 concerns? 15 MS. HOULE: No, just the number of spacing 16 exceptions kind of got our attention with other spacing 17 exceptions that have come up recently so it's been on 18 our -- spacing exceptions are on our radar. 19 CHAIR FOERSTER: So was that a yes or a no, did 20 that eliminate your concerns? 21 MS. HOULE: Yes. 22 CHAIR FOERSTER: Okay. Thank you. Okay. So 23 your first concern was getting information into the 24 public realm and I don't think we've addressed that 25 yet, but I think that answer -- I think my next set of 13 1 questions -- our next set of questions is for Hilcorp, 2 not for you. You're welcome to stay there, but I'd 3 like for somebody from Hilcorp to come up and answer a 4 couple questions. And then you might have more. 5 Please introduce yourself and who you represent. 6 MR. DUFFY: My name is David Duffy, I'm a 7 landsman for Hilcorp Alaska and we're pleased to be 8 here. 9 CHAIR FOERSTER: Okay. Mr. Duffy, as we were 10 looking over your submission to us with an eye to DNR's 11 concern about entering information into the public 12 record, we notice that there was an 11 page packet that 13 was labeled confidential. Actually it was a 12 page 14 packet, it says of 11, but now I see there's page 12 of 15 11. And actually there's more, it's quite a thick 16 packet, it's probably about 40 pages of confidential 17 data. And my first question is that -- you know, and 18 the confidential stamp says confidential per 11 AAC 19 83.153 and that's a DNR regulation, not an AOGCC 20 question. So my first question..... 21 MR. DUFFY: That is correct. 22 CHAIR FOERSTER: .....was that packet of 23 information intended to be held confidential by the 24 AOGCC? 25 MR. DUFFY: Yes, ma'am. 14 1 CHAIR FOERSTER: Okay. And my second question 2 is given that when we looked through this packet there 3 was a lot of information in it that is already in the 4 public realm and so before I ask -- well, my question 5 is why did you choose to label publicly available 6 information as confidential? 7 MR. DUFFY: It's confidential or the reports as 8 they were submitted there were two. One was the 9 geologic report and one was the engineering report and 10 they were voluntarily submitted in support of the 11 application. We have today prepared a presentation if 12 you'd like to see it that could introduce information 13 in support of our application into the public record. 14 CHAIR FOERSTER: Okay. So I'm going to ask my 15 question again. There's a lot of information in these 16 confidential reports that isn't confidential so I guess 17 what your answer to me was because the bulk of the 18 report was confidential..... 19 MR. DUFFY: That's correct. 20 CHAIR FOERSTER: .....the nonconfidential stuff 21 is just in there? 22 MR. DUFFY: The reason why I -- it was my 23 choice and my decision to establish the -- choose the 24 rule for the confidentiality and because we also 25 prepared the reports although to support the 15 1 application, we submitted copies to the Department of 2 Natural Resources upon our submittal to AOGCC. And we 3 wanted to make sure that the confidentiality of those 4 accompanying reports were also protected in the DNR's 5 files. 6 CHAIR FOERSTER: Okay. Okay. I have one more 7 question for Ms. Houle. 8 COMMISSIONER SEAMOUNT: Could I ask one? 9 CHAIR FOERSTER: Well, of course you can. I 10 apologize. it COMMISSIONER SEAMOUNT: The report that we have 12 right now that you submitted and it's stamped with the 13 DNR confidentiality regulation, has DNR seen this 14 report then? 15 MS. HOULE: Yes, I've got them here. 16 COMMISSIONER SEAMOUNT: Okay. So you have seen 17 this. Is there any report -- new and available 18 information that you are going to provide today is 19 there any different information on that than there is 20 -- that you've already provided to DNR or is there less 21 information on it? 22 MR. DUFFY: It's a higher level summary, it's 23 less detailed. 24 COMMISSIONER SEAMOUNT: It's less detailed. So 25 therefore DNR has actually seen more information than 16 1 the information that you're going to provide to the 2 public? 3 MR. DUFFY: That's correct. And in addition to 4 that..... 5 COMMISSIONER SEAMOUNT: Okay. So you -- so DNR 6 has actually seen more information than is going to be 7 provided. So the next question is does DNR need to see 8 the presentation that's going to be provided today that 9 the Petroleum News is going to be provided? 10 CHAIR FOERSTER: Well, that's the -- the 11 question is does -- do we need to have a hearing so 12 that the..... 13 COMMISSIONER SEAMOUNT: Do we need to have a 14 hearing. 15 CHAIR FOERSTER: .....public can have access to 16 information that is otherwise held confidential. And 17 that would be my question to Ms. Houle who raised the 18 question of needing to introduce data into the public 19 realm. Do you feel a need to - that we hold this 20 hearing for the public's benefit since nobody from the 21 public except Kristen Nelson is here? 22 MS. HOULE: No, we've got the information, it's 23 just what we have we cannot put in any decision we 24 write because it's confidential. So, I mean, if Mr. 25 Duffy would be willing just to put it in the 17 1 record..... 2 CHAIR FOERSTER: Yeah. And..... 3 MS. HOULE: .....that would work too. 4 CHAIR FOERSTER: Okay. And nor can we include 5 confidential stuff in our decision making. 6 MS. HOULE: Right. 7 CHAIR FOERSTER: All right. Anymore questions 8 for either one of these folks at..... 9 COMMISSIONER SEAMOUNT: Could I see a copy of 10 that -- what you're going to provide today? 11 MR. DUFFY: Yes. 12 COMMISSIONER SEAMOUNT: Because I may have a 13 question for Mr. Buthman. 14 CHAIR FOERSTER: But in general as an 15 educational moment when applications are submitted 16 unless there are pieces that are marked confidential 17 then everything that is submitted is in the public 18 record and available to the public to see. So we don't 19 have to have a hearing to hash over things that are in 20 the public record already. Now in this case there is a 21 bunch of stuff that was stamped confidential, but in 22 future before deciding that we need to have a hearing 23 so the public can know let's make sure that the public 24 doesn't already have access to the available data. 25 MS. HOULE: Well, the original one that was 18 1 submitted for the pool rules I did get off your website 2 and I did read, the one that -- it was like four or 3 five pages on pool rules. I did read that one. 4 CHAIR FOERSTER: The notice of hearing? 5 MS. HOULE: The not -- I've read the notice of 6 the hearing and then the pool rule application that was 7 in the public domain, I did -- I did read that. 8 CHAIR FOERSTER: Okay. The file contains more 9 than that..... 10 MS. HOULE: Yes. 11 CHAIR FOERSTER: .....so for future 12 reference..... 13 MS. HOULE: I did not come over here. 14 CHAIR FOERSTER: .....before deciding that the 15 public needs to know more check to make sure what the 16 public has available to them. 17 MS. HOULE: Right. And then the other thing is 18 we -- Hilcorp met with us last week and we'd already 19 asked for the hearing and so I don't know what the 20 logistics are of then canceling a hearing once you have 21 it on your docket. Timing was, you know, just a few 22 days. 23 CHAIR FOERSTER: I think it's just a phone 24 call. 25 MS. HOULE: Okay. 19 oz I •paooaa oTTcind aqq uT aa,Aagq qnq 'TvTquaPT;uoo SZ uaaq GAPu PTnoM qubnouq aAPq PTnoM I gvu4 Gaau uT Jjngs �z autos Gas I qnq 'uoTgpquasaad autos qu2M ATTapssaoau EZ -- au2M q,uop I :IN[I0WV2S URNOISSINHOa zz j,uoigPquasaad TZ auq aAPu oq axTT P , noaC : UHIS'da0a HIKHO 0z ..... autos aAPlq I qnq ' Gw ao; 6T buTgT'2M usT; autos aq AEw aaaijq -- oq qu2M I asnpoaq do 8T Aaanq oq squLM gvtlq Guo Gill w,I 'upaui I 'punoaL aw dETs LT oq quPm. noA ssaTun -- I :ZNCI0YI6'SS 2igNOISSIYQfntOO 9T •paooaa ST oTZgnd auq go gapd aq oq buTob s , 4v-gq 'POE 'uO • jaxood TVT anoA uT AaXuow aTgq sTuq sT 'aM :2IH.LSHaO3 UIKHo ET .Tpuq paPToaP ZT an, am gvrdq XUTuq I :lNfloNKgS ESNOISSITniR[OO TT .aav sdags qxau auq gP-gm apToap uPo am gPuq os OT Mou ggBla ssaoaa P GNvq pTnous am xuTuq I qng 6 •paooaa oTTgnd auq uT passaapPP ATagpnbapp aq g APw APEaaTP lPgq T;nqs ao; pup Mou gLIbTa agog To qoT P G buTuanq aa,aM 'daooTTH Pus -dNQ auq 'OOOOV auq 'saTgTqua 9 aaauq auq buowu gpuq MouX I asnpoaq AGuow pup awiq S s,auoAaana GAL'S oq buTAaq osTP aa,aM qnq 'aaaq buiggAup -v GPTq oq buTAaq qou Ga,GM os oTTgnd auq oq GTgPTTPAP E pup uado sbuTuq axuw oq quEM ATaPGTo am pup qnq 'uuo Z noA SP ATawTq SP qT OP PuV :UalSUH0d UIVHo T 1 would really like to ask the Hilcorp geologist some 2 questions some interest..... 3 CHAIR FOERSTER: So we'd let him make a 4 presentation? 5 COMMISSIONER SEAMOUNT: Not make a 6 presentation, I just want to ask some questions. 7 CHAIR FOERSTER: Okay. Well, I want to have -- 8 if you're going to have questions I want to have a 9 presentation. Should we have a recess to fight it out 10 or do you want to do it right here? 11 COMMISSIONER SEAMOUNT: No, how long would the 12 presentation take? 13 CHAIR FOERSTER: Probably less time than you 14 and I sitting here arguing about it. 15 COMMISSIONER SEAMOUNT: Probably less time than 16 a recess would take. Okay. Let's have the 17 presentation. 18 CHAIR FOERSTER: All right. 19 MR. DUFFY: Do it in less than 10. 20 COMMISSIONER SEAMOUNT: That's fine. That 21 would be great then. Let's have the presentation. 22 CHAIR FOERSTER: All right. So, David -- Mr. 23 Duffy you're already on the record and we need to get 24 the names of anyone else and anyone who's going to be 25 wanting to be recognized as an expert in an area we'll 21 1 have to swear -- you know..... 2 MR. DUFFY: So we have two experts that are 3 going to help provide the presentation. 4 CHAIR FOERSTER: And we need to swear you in 5 to, you know, the truth, the whole truth and nothing 6 but the truth. 7 MR. DUFFY: Be glad to. 8 CHAIR FOERSTER: Okay. 9 (Oath administered) 10 MR. DUFFY: I do. 11 CHAIR FOERSTER: And anybody else who comes up 12 we'll go through that again. And do you want to be an 13 expert? 14 MR. DUFFY: No. 15 CHAIR FOERSTER: Okay. 16 COMMISSIONER SEAMOUNT: And, Ms. Nelson, you 17 may or may not want to thank us. 18 DAVID DUFFY 19 called as a witness on behalf of Hilcorp Alaska stated 20 as follows on: 21 DIRECT EXAMINATION 22 MR. DUFFY: For the presentation that we've 23 prepared we have two expert witnesses that will support 24 -- help support the testimony. The first is Mr. David 25 Buthman, senior geologist for Hilcorp and second is Mr. 22 1 Christopher Kanyer, a reservoir engineer. 2 And would you like to swear in the witnesses 3 and go through their qualifications first because..... 4 CHAIR FOERSTER: Whatever you guys want to do. 5 MR. DUFFY: The first part of my presentation 6 really was going to be very quick and just provide a 7 general profile of the Ninilchik unit and I can zip 8 through that pretty quickly. 9 The unit was formed in 2001 at..... 10 CHAIR FOERSTER: And, I'm sorry, but as you 11 talk give a name to the slides you're talking to..... 12 MR. DUFFY: Okay. 13 CHAIR FOERSTER: .....so that the public record 14 reflects what you're..... 15 MR. DUFFY: So for the first slide we're going 16 to look at slide number of 11 in the presentation -- in 17 the hard copy that I just presented. And the -- it 18 provides a profile of the -- of the Ninilchik unit. 19 The unit was formed in 2001, at the time Marathon Oil 20 Company was the operator and they owned a 60 percent 21 working interest. 40 percent of the working interest 22 was owned by Union Oil Company of California. And in 23 2012 in -- January 1st, 2012 Hilcorp acquired Union Oil 24 Company's or Chevron at that time, the 60 percent and 25 then on February 1st, 2013 we acquired Marathon's 23 1 interest and became the operator of the field. 2 The unit itself extends from just north of Clam 3 Gulch on the Kenai Peninsula south towards Ninilchik, 4 but not into the town of Ninilchik itself, it's about 5 three to five miles north of there. The unit is 6 comprised of 25,819 acres and as you can see in the map 7 the unit is largely based offshore, all of the offshore 8 acreage is on -- is leased from the state. Overall the 9 state controls about 77 percent, 77.5 percent of all of 10 the leased acreage, the federal government has a small 11 piece, about 9 percent, CIRI, Cook Inlet Region, 12 Incorporated has a little short of 6 percent and the 13 patented fee lands comprise about 13 percent and the 14 patented fee lands are spread, of course, onshore, on 15 either side of the Sterling Highway. And that's part 16 of the complexity of the unit is that there is a lot of 17 fee land incorporated into this unit although it's a 18 relatively minor portion of the overall acreage. 19 The unit's comprised of three participating 20 areas. To the north we have the Falls Creek 21 participating area or PA, it consists of 988 acres. 22 And then the Grassim Oskolkoff participating area which 23 is in the center is located entirely offshore and it 24 consists of 1,920 acres. 100 percent of that is state. 25 And then the Susan Dionne/Paxton participating area to 24 1 the south. And in 2003 the Susan Dionne PA was 2 established and then in 2007 it was expanded to include 3 a tract operation drilled off the Paxton pad furthest 4 to the south. And so today the participating area's 5 comprised of 2,137 acres and similar to the overall 6 unit the state controls 77 percent, CIRI has about 10 7 percent, University of Alaska has 1.4 percent and then 8 patented fee lands consist of about 11, almost 12 9 percent. 10 On my next slide, slide four of 11, it's really 11 a summary of the proposed field rules. And for the 12 sake of brevity they're -- the same discussion that's 13 on page 1 of our June 11th application. If you'd like 14 I can talk about them, but they're also laid out in the 15 application themselves. So if you don't mind I can 16 skip through that or would you like me to go over them 17 quickly? 18 CHAIR FOERSTER: Just go quickly through them 19 for the record..... 20 MR. DUFFY: Okay. 21 CHAIR FOERSTER: .....please. 22 MR. DUFFY: The -- for rule number 1, the 23 initial field and pool area, we're requesting that the 24 initial -- that the affected area be defined by the 25 current Ninilchik unit boundary. And that's outlined 25 1 in pink on the first slide that I discussed and it's 2 also detailed in our application at exhibit A. 3 And the second rule, pool definition, we're 4 proposing to establish what we call the Ninilchik unit 5 Beluga/Tyonek pool and that's defined as the gas 6 bearing intervals common to and correlating with the 7 interval between the measured depth of 1,480 feet in 8 the Paxton number 5 well and 9,600 feet in the Paxton 9 number 1 well. 10 For rule number 3 Hilcorp's proposing unlimited 11 well spacing restrictions within the Ninilchik field 12 and the Beluga/Tyonek pool except that no gas well 13 shall be completed less than 1,500 feet from the 14 exterior boundary line of the then current Ninilchik 15 unit unless the property ownership is on -- is the same 16 on both sides of the boundary line. 17 And the fourth rule that we're proposing is an 18 administrative approval clause and we propose the 19 Commission include a standard clause to the proposed 20 rules to allow for administrative waiver of the 21 specific pool rules and to administratively amend any 22 rule so as long as the proposed changes do not promote 23 waste or jeopardize correlative rights, are based on 24 sound engineering and geoscience principles and will 25 not result in an increased risk of fluid movement into 26 1 fresh water. 2 CHAIR FOERSTER: Thank you. Before we move 3 onto the technical do you have any questions? 4 COMMISSIONER SEAMOUNT: I have none. 5 CHAIR FOERSTER: I do. So will correlative 6 rights within the unit be protected, you talked about 7 some complex ownership..... 8 MR. DUFFY: Sure. 9 CHAIR FOERSTER: .....but are correlative 10 rights within the unit protected? 11 MR. DUFFY: They most certainly are. 12 CHAIR FOERSTER: Okay. Second you referred to 13 a pink boundary and, you know, we all have our own 14 definitions of color, I mean, when I look at the 15 picture I see purple and I see red..... 16 MR. DUFFY: Oh. 17 CHAIR FOERSTER: .....so which one's pink? 18 MR. DUFFY: Oh, there we go. The color had 19 actually changed a little bit. The outer boundary, I'm 20 referring now -- I moved back to slide number 3. 21 CHAIR FOERSTER: The oil and gas unit boundary? 22 MR. DUFFY: The oil and gas unit boundary. 23 CHAIR FOERSTER: Okay. Thank you. 24 MR. DUFFY: The bold darker line on the 25 outside. 27 1 CHAIR FOERSTER: Okay. And my last question in 2 rule three you proposed unlimited spacing restrictions, 3 don't you mean no restrictions, I mean, unlimited 4 restrictions would mean we restrict everything you do? 5 MR. DUFFY: I guess we would, you're correct. 6 In the actual proposal -- so this is my summary that I 7 actually wrote up last night..... 8 CHAIR FOERSTER: Okay. But in the actual..... 9 MR. DUFFY: .....but in the proposal 10 specifically it says there shall be no gas well..... it CHAIR FOERSTER: Okay. 12 MR. DUFFY: .....spacing restrictions. 13 CHAIR FOERSTER: Okay. All right. You know, 14 as a -- as a bureaucrat I was just salivating at the 15 opportunity to restrict you without limit. I was just 16 kidding. 17 Okay. Do you have any questions? 18 COMMISSIONER SEAMOUNT: Not after that. 19 CHAIR FOERSTER: And, you know, my goal here is 20 to have our assistant attorney general in the back of 21 the room head do a 360 degree spin and I think he's 22 about three-quarters of the way there. Thank you. 23 MR. DUFFY: Thank you. 24 CHAIR FOERSTER: So you want to bring up your 25 next witness. W. 1 COMMISSIONER SEAMOUNT: I've known Mr. Buthman 2 for years and years. 3 CHAIR FOERSTER: All right. Mr. Buthman, we 4 need you to -- first we're going to swear you in and 5 then I'm assuming you want to be recognized as an 6 expert in geology and we'll have you give your 7 credentials for that. And we'll need you to talk into 8 both microphones as best you can. Put your name on the 9 record. 10 MR. BUTHMAN: David Buthman. 11 CHAIR FOERSTER: And you work for? 12 MR. BUTHMAN: I work for Unical or Hilcorp 13 Alaska, LLC. 14 CHAIR FOERSTER: You work for Hilcorp? 15 MR. BUTHMAN: I work for Hilcorp..... 16 CHAIR FOERSTER: Okay. 17 MR. BUTHMAN: .....today, yes. 18 (Oath administered) 19 MR. BUTHMAN: I do. 20 DAVID BUTHMAN 21 called as a witness on behalf of Hilcorp Alaska stated 22 as follows on: 23 DIRECT EXAMINATION 24 CHAIR FOERSTER: Okay. And would you like to 25 be recognized as an expert in geology? 29 1 MR. BUTHMAN: Yes. 2 CHAIR FOERSTER: All right. So give us your 3 credentials. 4 MR. BUTHMAN: 1980 bachelor's degree, in 1982 5 master's degree in geology and Southern Illinois 6 University, 25 years oil and gas petroleum geology 7 experience with Unical and then five years with Chevron 8 and the last two years with Hilcorp Alaska. 9 CHAIR FOERSTER: Do you have any questions? 10 COMMISSIONER SEAMOUNT: Do you still believe in 11 astroblemes? 12 MR. BUTHMAN: Yes, sir. 13 COMMISSIONER SEAMOUNT: I have no -- I believe 14 Mr. Buthman is an expert in astroblemes and petroleum 15 geology. 16 CHAIR FOERSTER: I have a question for him. If 17 you were sitting here and Mr. Seamount were sitting 18 there would you recognize him as an -- no, just don't 19 answer that question. I have no problem recognizing 20 you as an expert either. So you may proceed with your 21 testimony. And the last thing I wanted to remind you 22 is I -- your slides aren't numbered, but if you -- as 23 you refer to a slide refer to it by its title so 24 that..... 25 MR. BUTHMAN: Okay. 30 1 CHAIR FOERSTER: .....you know, or some other 2 way you think we can guarantee that someone 20 years 3 from now reading this for the comedic value can 4 actually get some technical insights as well. 5 MR. BUTHMAN: All right. This is the index map 6 of the lower Sterling structure in Ninilchik field or 7 Ninilchik, it's located in -- anyway let me just 8 identify what's on the map. Again the black lines are 9 contours on top of the lower Sterling. Why I include 10 the lower Sterling is because it's above the main gas 11 productive horizons and so it doesn't complicate and 12 confuse the deeper seismic structure picture. That's 13 why we include this. To the north -- north to south we 14 have Falls Creek and Bartolowitz pads here, the blue 15 outlines are the PAs, the red outlines are the unit 16 outlines. So at the north we've got Bartolowitz and in 17 the middle is the GO pad, that's where the discovery 18 was in the year 2000. And then in the south is the 19 Paxton/Dionne pads. What we're doing -- we're kind of 20 pad lean at the moment and so we're building new pads 21 in the north and expanding pads in the south. The radi 22 (ph) there, a 3,000 foot radi around currently 23 productive gas zone perforations or identified gas zone 24 potential in individual well bores and so you can see 25 it's so crowded, every one of these deserves and 31 1 demands a spacing exception. It's just been 2 administratively quite a hearthache -- headache. So 3 you can see every time those overlap we have to come 4 here and -- and request a spacing exception. And also 5 with Hilcorp the little box on the right there shows 6 the wells that we drilled, we drilled five wells last 7 year. It caused -- we drilled on a new pad and we're 8 going to be expanding a pad around Paxton 5. 9 We've recompleted four wells we've returned to 10 production, that's RTP, Paxton 1 and the Dionne 7, 11 they've been offline for -- since 107 or further, 12 Dionne 7 never produced and we're in the planning 13 stages for six more wells in the upcoming fun drilling 14 season. Every time we drill we realize how stupid we 15 are and we didn't understand once we get new data. We 16 seem to be expanding to the east as you can see up in 17 the north and so we're impinging outside the PA and 18 towards the unit boundaries. And the same thing 19 appears to be occurring to the south. In the middle we 20 just haven't concentrated and we don't have new wells 21 there. So more data we get the less we seem to know 22 and the more we're going to need to expand or adjust 23 the unit to conform to the geology. 24 The proposed top and base of the productive 25 intervals to date are the Beluga and I think we have 32 1 this in our request at 1480 MD in the Paxton 5. And 2 why we have two different wells that define the top and 3 base are because Marathon/Unical didn't log any of the 4 shallow, they started logging after the surface casing 5 string. So the Paxton 5 we drilled last year was the 6 first well that really logged what we recognize as pay 7 in the very top of the Beluga and we see limited to no 8 potential above there because of the seal quality. And 9 then Paxton 1 has the currently deepest productive 10 interval in the field and that's the base of the Tyonek 11 140 or 9,600 feet. 12 Again I showed the 3,000 foot radi. When you 13 compare that to analog channel width for fresh water 14 terrestrial fluvial systems so basically sand channel 15 width and two really good analogs that we inherited 16 quite a bit of data from Unical days is the piont (ph) 17 spacing in Colorado and also in the Gulf of Thailand. 18 Both are fluvial systems with very similar petrophysics 19 and sand quality and distribution characteristics and 20 that's basically what we're seeing here is an analog 21 channel width or in a little bit we've compared this 22 with actual observed drainage widths. So anyway this 23 is an overarching, higher level view of channel widths 24 and if you do it in a log probability plot on the right 25 axis, the Y axis, the P50 so it's saying that 50 33 1 percent of the data falls above and below 550 foot 2 channel width. So you compare the 550 channel width 3 with the 3,000 foot radius and we have a disconnect 4 we'll be wasting it, we'll be missing a significant, a 5 majority of the channels if we have to drill 3,000 feet 6 apart. 7 And just a helicopter flyover the Colville, it 8 kind of identifies the same thing. You know, you could 9 drill on the -- in the southeast and hit a sand 10 channel, well, go 3,000 foot northwest and miss 11 completely. It's just showing that these channels are 12 very, you know, discontinuous and we're finding that -- 13 anyway I think that's the part -- that's the end of 14 this presentation. I have a little backup data, it was 15 just the input, the backup data was just the channel 16 width dimensions from the Williams Fork in the Gulf of 17 Thailand based on the sandstone channel width 18 thicknesses. 19 CHAIR FOERSTER: All right. Thank you. 20 Commissioner Seamount, do you have any questions? 21 COMMISSIONER SEAMOUNT: Well, my major question 22 was answered. The big question I had was why you went 23 all the way to Thailand to find an analog for something 24 in Cook Inlet when there's a lot of stuff in Cook Inlet 25 that you could use as analogs..... 34 1 MR. BUTHMAN: No, I..... 2 COMMISSIONER SEAMOUNT: .....even all the way 3 to Colville River, I mean, you could fly over Beluga 4 River or Eagle River even and show an analog possibly. 5 You don't think Susitna River or Little Susitna River 6 would make an analog as a flyover compared to the 7 Colville River? 8 MR. BUTHMAN: No, I've used -- I've used the 9 Ninilchik and the Kenai and the Kasilof and Fitz -- 10 Fritz Creek, a number of those also and measured those. 11 It's hard to measure them in the subsurface, you can 12 see them in profile..... 13 COMMISSIONER SEAMOUNT: Right. 14 MR. BUTHMAN: .....but the three dimensional 15 view of it's very difficult in the Cook Inlet. Why use 16 the Gulf of Thailand as you know is the seismic data 17 and the -- it's just the quality of the rocks. Being 18 offshore the seismic data is very accurate at 19 determining the channel width. Up here you can see it 20 on the surface and you can take a picture of it and you 21 measure it, we did that on the Kenai, Kasilof and Fritz 22 Creek and that -- we have all that data, it's in the 23 mix. As you can imagine we -- you know, this was the 24 most eloquent, simple and consistent data that we 25 showed. 35 1 COMMISSIONER SEAMOUNT: You..... 2 MR. BUTHMAN: And you'll see much more detail 3 or you'll hear a description of some 70 odd channel 4 sands that produce gas in this specific field and hear 5 the statistics on those channel widths. 6 COMMISSIONER SEAMOUNT: You think some of these 7 Beluga channels are the result of rivers the size of 8 the Kenai or are these smaller than Kenai? 9 MR. BUTHMAN: I think some of them in the 10 Tyonek -- in the Beluga specifically I think they're -- 11 they're not very channelized, they're -- in the lower 12 Beluga they're very channelized. Then we get into the 13 middle it's more ubiquitous, it's more multi -storied 14 amalgamation cheats. And we get into the Up it's very 15 correlative over long distances. So, yeah, it's very 16 heterogenous. 17 COMMISSIONER SEAMOUNT: Okay. And then I'm a 18 little bit confused, you got two type logs for the top 19 and base for the pool. Let's see. Oh, I guess you got 20 one for the top -- one log for the top and one log for 21 the base, that's correct. Is that correct? 22 MR. BUTHMAN: That's correct. 23 COMMISSIONER SEAMOUNT: That's -- okay. That's 24 how I'm reading this. Okay. And then I've got a final 25 question, I don't know one of you -- one of you three 36 1 testifiers can answer it and it may be Mr. Duffy, but a 2 long time ago I got a call from a neighbor and it was 3 Marathon was testing one of the wells out there and she 4 said that it was way too loud and the moose and the 5 birds and the squirrels had just left the area and 6 would I please make them shut the well in, it was 7 making too much noise and I said well, we don't -- we 8 don't have any authority over well noise out there and 9 she finally got the troopers to come in and have them 10 shut the well in. How are you guys getting along with 11 your neighbors now with all this activity? 12 MR. DUFFY: I don't have any specific 13 information about that and we certainly haven't had 14 troopers involved. But we are working with the 15 neighbors and the neighborhood in the south and in the 16 east is comprised of a lot of mixed ownership. So most 17 of the original homesteaders had the mineral rights, 18 they've subdivided, a lot of times they've sold off the 19 surface. So outside of the unit and along the Sterling 20 Highway there's lots of smaller parcels particularly 21 with subdivided land, you know, say less than 10 acres, 22 sometimes down to even an acre and we've been trying to 23 do a lot of outreach with the neighbors to explain why 24 they're seeing new traffic or why a drill rig is coming 25 on. And we have had an instance of a neighbor about a KA 1 quarter mile or third of a mile away from the Paxton 2 pad who's been curious about why the noise changed and 3 one of it was the frequency of -- we installed new 4 compression last year and so the noise actually 5 changed, the compressor blows off to the coast, but 6 when the wind was just right she could hear it. And sc 7 we've been working with here repetitively trying to 8 come up with some solutions. And we talked about 9 fencing, we talked about planting new vegetation and 10 the biggest thing is just making sure that we're out 11 there talking to the neighbors and letting them know 12 who they are and if they have concerns have them call 13 us directly so they don't have to wonder who's Hilcorp. 14 And so we're trying really hard to do that. 15 COMMISSIONER SEAMOUNT: Thank you. 16 CHAIR FOERSTER: Thank you both. I have no 17 questions. 18 MR. BUFFY: Thank you. And stay on the -- I 19 mean, you'll stay on the record and sworn in throughout 20 the course of the hearing in case we have to call you 21 back. And is your engineer coming up now. 22 All right. First I want to swear you in. 23 Well, first introduce your name and who you represent 24 for the record. 25 MR. KANYER: I'm Christopher Kanyer, I work for 38 1 Hilcorp as a reservoir engineer. 2 CHAIR FOERSTER: All right. 3 (Oath administered) 4 MR. KANYER: Yes. 5 CHRISTOPHER KANYER 6 called as a witness on behalf of Hilcorp Alaska stated 7 as follows on: 8 DIRECT EXAMINATION 9 CHAIR FOERSTER: All right. And would you like 10 to be recognized as an expert in reservoir engineering? 11 MR. KANYER: Yes, ma'am. 12 CHAIR FOERSTER: All right. So give us your 13 credentials, please. 14 MR. KANYER: I have a bachelor's and master's 15 degree in mathematics from Washington State University 16 in 2004 and 2006. And I have a master's in petroleum 17 engineering from University of Alaska Fairbanks. 18 CHAIR FOERSTER: Commissioner Seamount, do you 19 have any questions? We're considering swearing him in 20 as..... 21 COMMISSIONER SEAMOUNT: Oh, no, no. I consider 22 him an expert. 23 CHAIR FOERSTER: So, Mr. Kanyer, how long -- 24 when did you get your master's degree? 25 MR. KANYER: I got my master's degree in April 39 1 of 2012 and I've worked in the oil and gas industry 2 since 2007. 3 CHAIR FOERSTER: And what did you do before you 4 got your degree? 5 MR. KANYER: I've worked as a (indiscernible) 6 tech, I've worked as an operations engineer and a 7 reservoir engineer prior to..... 8 CHAIR FOERSTER: For whom? 9 MR. KANYER: For Chevron and for Hilcorp. 10 CHAIR FOERSTER: Okay. Okay. I have no 11 problems recognizing you as an expert. Do you? 12 COMMISSIONER SEAMOUNT: Where did you work for 13 Chevron? 14 MR. KANYER: Here in Alaska. 15 COMMISSIONER SEAMOUNT: Okay. No, I have no 16 problems. 17 CHAIR FOERSTER: Okay. You may proceed. And 18 remember if you -- I don't see any slides from you, are 19 there going to be any? 20 MR. KANYER: No, I will not present any new 21 slides. 22 CHAIR FOERSTER: Okay. 23 MR. KANYER: I'd like to add to the analog 24 work. 25 CHAIR FOERSTER: Okay. Name the slides -- if M 1 you talk off slides give the name for them so we can 2 refer back to them in the public record in the future. 3 MR. KANYER: So I'm displaying the analog 4 fluvial channel widths slide and I'd like to discuss 5 the specific Ninilchik work that I have done over the 6 last couple of years with regard to the Ninilchik unit. 7 We have roughly 79 producing sands -- well, 8 actually more so recently, but we've studied -- I've 9 studied the 79 producing sands and looked at specific 10 drainage areas of each and we've shown that over 90 11 percent of the producing sands with allocated 12 production would back out to a much less or much 13 smaller drainage area, much smaller than the well 14 spacing requirements as they stand. We have a mean 15 drainage area of 148 acres and we've seen through 16 pressure transient analysis studies on wells that we 17 have done and -- as Hilcorp, channels widths of 230 18 feet thereabouts in recent times in the Beluga and 19 Tyonek sands. And so just trying to validate the 20 analog data that we see in this slide that we have 21 studied the sands that have produced in Ninilchik and 22 they fall on this distribution very well and actually 23 they fall less than this distribution. 24 So I just wanted to provide that support as it 25 was discussed what have we see in Ninilchik, I just 41 1 want to enter that data. 2 CHAIR FOERSTER: Okay. Do you have any 3 questions? 4 COMMISSIONER SEAMOUNT: No, I don't. Thank 5 you, Mr. Kanyer. 6 CHAIR FOERSTER: Nor do I. Do you see a need 7 to recess? 8 COMMISSIONER SEAMOUNT: I don't see any need to 9 recess. I'd like to thank Hilcorp for a good, 10 professional presentation and coming in today. 11 CHAIR FOERSTER: Was it eloquent, simple and 12 consistent? 13 COMMISSIONER SEAMOUNT: It was. 14 CHAIR FOERSTER: I was listening. All right. 15 Is there anyone else who wishes to testify. 16 MS. HOULE: (Indiscernible - away from 17 microphone)..... 18 CHAIR FOERSTER: Well, come on up here and 19 speak into the microphone, introduce yourself again. 20 MS. HOULE: This is Julie Houle with Division 21 of Oil and Gas. I just wondered if you, Chris, you 22 could just..... 23 CHAIR FOERSTER: Well, you don't ask them 24 questions, you can..... 25 MS. HOULE: Oh, I'm sorry. 42 1 CHAIR FOERSTER: .....submit questions to 2 us..... 3 MS. HOULE: Okay. 4 CHAIR FOERSTER: .....and if we just -- if we 5 deem them necessary for the sake of the hearing we will 6 ask them. 7 MS. HOULE: Okay. I was just wondering if 8 Hilcorp could comment for the record on the commingling 9 of the Tyonek in the Beluga reservoirs. 10 CHAIR FOERSTER: On the impact on ultimate 11 recovery? 12 MS. HOULE: Yes. 13 CHAIR FOERSTER: All right. Do -- I don't see 14 any problem with that for the good of the order, do 15 you? 16 COMMISSIONER SEAMOUNT: I'm thinking has there 17 been -- was there -- hasn't there been a recent 18 application for that? 19 MS. HOULE: It's in the pool rules. 20 COMMISSIONER SEAMOUNT: Oh, it's part of the 21 pool rules. Oh, okay. 22 MS. HOULE: Under the pool definition of rule 23 two. It's in the pool rule. 24 COMMISSIONER SEAMOUNT: Oh, I don't see a 25 problem with that. W 1 CHAIR FOERSTER: All right. 2 MS. HOULE: Okay. 3 CHAIR FOERSTER: So I'm assuming that you're 4 the man. Reintroduce yourself, just your name. 5 MR. KANYER: This is Chris Kanyer. I can 6 answer that. The -- you can see in the nearby Deep 7 Creek unit and Happy Valley field we do have 8 commingling of that, the Beluga and the Tyonek 9 reservoirs. And we see that it's very fit for a 10 Ninilchik unit as we see we do not want to have undue 11 waste as we cannot commingle currently of the Beluga 12 and Tyonek that we would find that we would.abandon the 13 Tyonek reservoirs prematurely leaving reserves from 14 small channels behind and then move on to Beluga gas 15 bearing sands and we're asking for the commingling so 16 we can keep the wells flowing, keep them above the 17 unloading rate and add to the ultimate recovery of in 18 this case the deeper Tyonek sands. 19 CHAIR FOERSTER: Do you have any questions? 20 COMMISSIONER SEAMOUNT: No. 21 CHAIR FOERSTER: These are all pressure 22 depletion reservoirs..... 23 MR. KANYER: Correct. 24 CHAIR FOERSTER: .....so there's no concern 25 about loss of recovery by an overpressured pressure 44 1 depletion reservoir spilling in a water drive reservoir 2 or anything like that? 3 MR. KANYER: We see a very normal .43 psi per 4 foot gradient through the entire Beluga/Tyonek section, 5 we have not seen evidence that this is true water drive 6 in the field..... 7 CHAIR FOERSTER: Okay. 8 MR. KANYER: .....it's typically a depletion 9 drive as the nearby fields are. And we have 10 successfully patched or plugged off water and continued 11 to flow wells if that had become a problem. 12 CHAIR FOERSTER: Okay. Thank you. All right. 13 Anyone else wishing to testify? 14 (No comments) 15 CHAIR FOERSTER: Seeing no one, I'm going to 16 give you one last chance for a simple, eloquent and 17 consistent comment. 18 COMMISSIONER SEAMOUNT: Eloquence is not -- 19 won't work. So..... 20 CHAIR FOERSTER: I know you can do simple. 21 COMMISSIONER SEAMOUNT: Okay. 22 CHAIR FOERSTER: I have nothing else. The 23 hearing's adjourned. 24 (Adjourned - 9:49 a.m. ) 25 (END OF PROCEEDINGS) 45 1 C E R T I F I C A T E 2 I, Salena A. Hile, Notary Public in and for the 3 state of Alaska, residing in Anchorage in said state, 4 do hereby certify that the foregoing matter, Pages 02 5 through 46 are a true and correct transcription of a 6 recording taken in Docket No.: CO 14-018 on July 22, 7 2014. 8 9 10 Date Salena A. Hile M STATE OF ALASKA OIL AND GAS CONSERVATION COMMISSION Public Hearing Docket #CO 14-18 July 22, 2014 at 9:00 a.m. NAME AFFILIATION Testify (yes or no) V-19 t N, % 't AJIZ 1 C AL t"'li-Ae Al 0 rf?&en elsovi F&+d o-ji<s, i a�1e. `DN lz Da -$ G �I o torch&e No K< (e smlii \ 001066 AfU Hilcorp Alaska, LLC. Proposed Field and Pool Rules for the Ninilchik Unit Introduction / Opening Remarks: David W. Duffy, Landman (Alaska Bar No. 0605016) Expert Witnesses: David Buthman, Sr. Geologist Christopher Kanyer, Reservoir Engineer July 22, 2014 RECEIVE® JUL 2 2 2014 AOGCC Confidentiality Issues Introduction Expert Witness Qualification Ninilchik Unit Profile Summary of Proposed Pool Rules Expert Testimony — Geologic: Mr. Buthman Expert Testimony — Reservoir Engineering: Mr. Kanyer Ninilchik Unit o to,aoo 20,OM Ninilchik Unit Few A,3"a stale Plane Zone a, NA027 A 11A. -p %6A. I I Map Date:'4V2011 Profile: • Formation: October 2001 • Operated by Marathon Oil Company (60% WI) • Union Oil Company of California (40% WI) • Operatorship • January 1, 2012: Hilcorp acquired a 60% working interest from Chevron (successor to Union Oil) • February 1, 2013: Hilcorp acquired the remaining 40% working interest from Marathon. • Land Profile: • Unit Acreage: 25,819 acres (-190 tracts) • Federal: 9% • State: 77.5% • University of Alaska: 2.56% • CIRI: 5.88% • Patented Fee Lands: 13.12% • Three Participating Areas: • Falls Creek PA: 988.5 acres • Federal: 1.03% • State of Alaska: 84.58% • Patented Fee Lands: 14.377% • Grassim Oskolokoff PA: 1,920 acres (100% State) • Susan Dionne -Paxton PA: 2,137.4 acres • State of Alaska: 77.02% • CIRI: 10.04% • University of Alaska: 1.44% • Patented Fee Lands: 11.48% Proposed Field and Pool Rule Summary :ial Field and Pool Hilcorp requests the initial field and pool rules be applied to the affected area of the Ninilchik Unit Boundary, outlined in pink on the previous slide, and as illustrated in ExhibitA of its June 11, 2014 application. Rule 2: Pool Definiti Hilcorp proposes the establishment of the Ninilchik Unit Beluga/Tyonek Pool, defined as the gas bearing intervals common to and correlating with the interval between the measured depths ("MD") of 1480' in the Paxton #5 well, and 19600' in the Paxton #1 well. 'Rule 3: Gas Well Spacing Hilcorp proposes unlimited gas well spacing restrictions within the Ninilchik Field and Beluga/Tyonek Pool, except that no gas well shall be completed less than 1,500 feet from the exterior boundary line of the then current Ninilchik Unit unless property ownership is the same on both sides of the Unit boundary line. ale 4: Administra Hilcorp proposes the Commission include a standard administrative approval clause in the proposed rules to allow for administrative waiver of specific pool rules and to administratively amend any rule, so long as the proposed 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 freshwater. 11 Expert Testimony Mr. David Buthman Sr. Geologist r000A Index man! Lower steriinc lr LAURI F 14proposed Top and Base for Pool Top of Beluga Recommended Top of Pool- 1480' MD 1`130 TOP f135 -TOP T-1 PAXTO N 1 -10,115 137781 ff004 :ALI [IN] `+ NPHI [VN] SP [wq DTC [VSIF] 70 150 'LOS [PCT] RESD [OHMM] 500 0 GR [GAPI] RHOS [G/C3] 'Base of T-140: Base of Pool: 9600' MD I I Analogue Fluvial Channel Widths A. . A A 0 L a } r U P00.1 P01 P02 P05 P10 P20 P30 P40 P50 PEO. P70 POO 19�I$j P95 - P98 P99 P99.9 1 : : 10 100 :1,000 10,000 Figure: Log probability chart of channel widths from the Williams Fork Formation in the Piceance Basin, Colorado, and in the Gulf of Thailand analogue fluvial depositional environments. Note that the best fit P50 intersection is at approximately 540 feet width. The State of Alaska's setback requirement for gas wells is 3000 feet. The intersection of the setback requirement 3000 foot width would prevent or seriously inhibit detection of gas filled fluvial channels in the Ninilchik Pool Unit. Figure: Coleville Diver, forth Slope, showing discontinuous sandstone point bar boder amalgamations. Backup Data ANALOGUE / Ss Thk (Ft) Gulf of Thailand /10' Gulf of Thailand /15' Gulf of Thailand /20' Gulf of Thailand /25' Gulf of Thailand/30' Williams Fork/10' Williams Fork/15' Williams Fork/20' Williams Fork/25' Williams Fork/30' 39 59 78 98 112 117 258 469 682 744 857 1023 1085 1364 1705 1814 2046 3088 4666 6538 Channel Width (Ft) Best Fit Width Worst Case Width (Ft) 857 112 1814 258 3088 469 4666 744 6538 1085 682 39 1023 59 1364 78 1705 98 2046 117 Channel Thickness Vs Thickness 10000 0 5 10 15 20 25 Thickness, Ft 11 Expert Testimony Mr. Christopher Kanyer, Reservoir Engineer #4 Carlisle, Samantha J (DOA) From: diane b walsh <dianebwalsh@verizon.net> Sent: Wednesday, July 02, 201411:29 AM To: Carlisle, Samantha J (DOA) Subject: HILCORP ALASKA, LLC: DOCKET NO. CO -14-018 AND DOCKET NO. CO -14-020 Attachments: WALDSMITH RECORDS REQUEST 051.pdf Dear Samantha: Thank you for taking the time to answer my questions today. Please find attached a copy of a Request for AOGCC Records. Is it possible that these records be emailed to me? If so, that is the method by which I would prefer to receive them. On behalf of my clients, Darwn and Kaye Waldsmith, I request that the hearing tentatively scheduled for July 22, 2014, in connection with Docket No. CO -14-018 (Hilcorp Alaska, LLC Application for Pool Rules), be held. I understand that the sending of this email to you will constitute the filing of the required written request for that hearing. Please acknowledge receipt of this message by return email. Thank you, again, for your assistance. Sincerely, DLa viRl B. W aU�v Diane B. Walsh Attorney at Law 217 Windermere Court McMurray, PA 15317 Phone/Fax 724-941-7101 This e-mail is meant only for the intended recipient and contains confidential and/or privileged information. If you have received this in error, please notify us immediately by replying to this message and delete it and any attachments from your computer. Thank you. Collect calls will be accepted at 724-941-7101. Any unauthorized dissemination, disclosure, distribution or use of information contained in this e-mail or any attachments is prohibited. This transmission shall not be construed to: (a) provide legal advice to anyone other than an existing client, (b) create an attorney-client relationship, or (c) include a digital or electronic signature. Pursuant to CIRCULAR 230, unless otherwise expressly indicated, any tax advice contained in this communication is not intended and may not be used for the purpose of avoiding tax -related penalties under the Internal Revenue Code. #3 THE STATE "'ALASKA June 26, 2014 GOVERNOR SEAN PARNELL RECEIVED JUN 2 7 2014 AOOCC Cathy Foerster, Chair Alaska Oil and Gas Conservation Commission 333 West 7t' Avenue, Suite 100 Anchorage, Alaska 99501 Re: Request for Hearing, Ninilchik Unit Pool Rules Dear Chair Foerster: Department of Natural Resources Division of Oil & Gas Anchorage Office 550 W. 7m Avenue Suite 1 100 Anchorage, Alaska 99501-3560 Main: 907.269.8800 Fax: 907.269.8939 CERTIFIED MAIL RETURN RECEIPT REQUESTED The State of Alaska, Department of Natural Resources, Division of Oil and Gas (Division) requests the Alaska Oil and Gas Conservation Commission (Commission) hold a public hearing regarding Hilcorp Alaska, LLC's application for Pool Rules for the Ninilchik Unit. The Commission has tentatively scheduled a hearing for July 22, 2014. If you have questions regarding this request, please contact Kyle Smith with the Division at (907) 269-8807, or via email at kyle.smith@alaska.gov. Sincerely, W.C. Barron Director cc: DOL #i Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission Re: Docket No. CO -14-018. Hilcorp Alaska, LLC (Hilcorp) has applied for Pool Rules for the Ninilchik Unit located on the Kenai Peninsula, Alaska in conformance with 20 AAC 25.520. The non -confidential portions of Hilcorp's may be reviewed at the offices of the Commission, 333 West 7th Avenue, Suite 100, Anchorage, Alaska, or a copy of the non -confidential portions may be obtained by phoning the Commission at (907) 793-1221. The Commission has tentatively scheduled a public hearing on this application for July 22, 2014 at 9:00 a.m. at the Alaska Oil and Gas Conservation Commission, at 333 West 7`h Avenue, Suite 100, Anchorage, Alaska 99501. To request that the tentatively scheduled hearing be held, a written request must be filed with the Commission no later than 4:30 p.m. on July 3, 2014. 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 hearing, call 793- 1221 after July 10, 2014. In addition, written comments regarding this application may be submitted to the Alaska Oil and Gas Conservation Commission, at 333 West 7t' Avenue, Suite 100, Anchorage, Alaska 99501. Comments must be received no later than 4:30 p.m. on July 18, 2014, except that, if a hearing is held, comments must be received no later than the conclusion of the July 22, 2014 hearing. If, because of a disability, special accommodations may be needed to comment or attend the hearing, contact the Commission's Special Assistant, Jody Colombie, at 793-1221, no later than July 20, 2014. Cathy . Foerster Cathy Chair STATE OF ALASKA ADVERTISING ORDER F AOGCC R 333 W 7th Ave, Ste 100 ° Anchorage, AK 99501 M T Anchorage Daily News PO Box 149001 Anchorage, AK 99514 NOTICE TO PUBLISHER ADVERTISING ORDER NO. INVOICE MUST BE IN TRIPLICATE SHOWING ADVERTISING ORDER NO., CERTIFIED /1A O_14-041 AFFIDAVIT OF PUBLICATION (PART 2 OF THIS FORM) WITH ATTACHED COPY OF ADVERTISEMENT MUST BE SUBMITTED WITH INVOICE AGENCY CONTAG Jody Colombie PHONE DATE OF A.O. June 16, 2014 PCN 1011 / -1LL1 DATES ADVERTISEMENT REQUIRED: June 17, 2014 THE MATERIAL BETWEEN THE DOUBLE LINES MUST BE PRINTED IN ITS ENTIRETY ON THE DATES SHOWN. Type of Advertisement Legal® ❑ Display Classified [-]Other (Specify) SEE ATTACHED AOGCC, 333 W. 7th Ave., Suite 100 Anchorage, AK 99501 NUMBER AMOUNT 02910 SY CC PGM 14 02140100 PAGE 1 OF TOTAL OF 2 PA I ALL PAGES COMMENTS LC ACCT FY NMR DIST 73451 DIVISION APPROVAL: Publisher/Original Copies: Department Fiscal, Department, Receiving AO.FRM 270227 0001096115 $ 199.22 AFFIDAVIT OF PUBLICATION STATE OF ALASKA THIRD JUDICIAL DISTRICT Joleesa Stepetin being first duly sworn on oath deposes and says that he is a 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 June 17, 2014 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. Subscribed and sworn to before me t - is 17th day of June, 2014 Notary Public in and for The State of Alaska. Third Division Anchorage, Alaska MY COMMISSION EXPIRES ECEIVED JUN 2 3 2014 ..AOGCC Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission Re: Docket No. CO -14-018. Hilcorp Alaska, LLC (Hilcorp) has applied for Pool Rules for the Ninilchik Unit located on the Kena Peninsula, Alaska in conformance with 20 AAC 25.520. The non. confidential portions of Hilcorp's may be reviewed at the offices of the Commission, 333 West 7th Avenue, Suite 100, Anchorage, Alaska, or a COPY of the non -confidential portions may be obtained by phoning the Commission at (907) 793-1221. The Commission has tentatively scheduled a public hearing on this application for July 22, 2014 at 9:00 a.m. at the Alaska Oil and Gas ConservaAnchorage, Alaska 99501. To request on Commission, at 333 that he tentat vely scst 7th Avenue heduled ete d hearing be held, a written request must be filed with the Commission no later than 4:30 p.m. on July 3, 2014. 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 hearing, call 793-1221 after July 10, 2014. In addition, written Comments regarding this application may be submitted to the Alaska Oil and Gas Conservation Commission, at 333 West 7th Avenue, Suite 100, Anchorage, Alaska 99501. Comments must be received no later than 4:30 p.m. on July 18, 2014, except that, if a hearing is held, comments must be received no later than the conclusion of the July 22, 2014 hearing. If, because of a disability, special accommodations may be needed to comment or attend the hearing, contact the Commission's Special Assistant, Jody Colombie, at 793-1221, no later than July 20, 2014. Cathy P. Foerster Chair AO -14-041 Published: June 17, 2014 STATE OF ALASKA NOTICE TO PUBLISHER ADVERTISING ORDER NO. ADVERTISING INVOICE MUST BE IN TRIPLICATE SHOWING ADVERTISING ORDER NO., CERTIFIED /L O_14-041 ORDER AFFIDAVIT OF PUBLICATION (PART 2 OF THIS FORM) WITH ATTACHED COPY OF A ADVERTISEMENT MUST BE SUBMITTED WITH INVOICE SEE ]BOTTOM POR INVQICEAID[Mwi�-', F AOGCC AGENCY CONTACT DATE OF A.O. R 333 West 7t' Avenue. Suite 100 o Anchorage. AK 99501 M o Anchorage Daily News PO Box 149001 Anchorage, AK 99514 United states of America State of division. PCN ATE U /7J -lL DATES ADVERTISE June 17, 2014 THE MATERIAL BETWEEN THE DOUBLE LINES MUST BE PRINTED IN ITS ENTIRETY ON THE DATES SHOWN. SPECIAL INSTRUCTIONS: Account # STOF0330 AFFIDAVIT OF PUBLICATION REMINDER 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. Before me, the undersigned, a notary public this day personally appeared ATTACH PROOF OF PUBLICATION HER who, being first duly swom, 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 2012, and thereafter for consecutive days, the last publication appearing on the day of . 2014, 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 2014, Notary public for state of My commission expires. Singh, Angela K (DOA) From: Colombie, Jody J (DOA) Sent Monday, June 16, 2014 224 PM To: David Duffy (dduffy@hilcorp.com); Ballantine, Tab A (LAW); Bender, Makana K (DOA); Bettis, Patricia K (DOA); Brooks, Phoebe L (DOA); Carlisle, Samantha J (DOA); Colombie, Jody J (DOA); Crisp, John H (DOA); Davies, Stephen F (DOA); Eaton, Loraine E (DOA); Ferguson, Victoria L (DOA); Foerster, Catherine P (DOA); Frystacky, Michal (DOA); Grimaldi, Louis R (DOA); Guhl, Meredith D (DOA); Hill, Johnnie W (DOA); Hunt, Jennifer L (DOA); Jackson, Jasper C (DOA); Jones, Jeffery B (DOA); Kair, Michael N (DOA); Mumm, Joseph (DOA sponsored); Noble, Robert C (DOA); Paladijczuk, Tracie L (DOA); Pasqua[, Maria (DOA); Regg, James B (DOA); Roby, David S (DOA); Scheve, Charles M (DOA); Schwartz, Guy L (DOA); Seamount, Dan T (DOA); Singh, Angela K (DOA); Wallace, Chris D (DOA); (michael j.nelson@conocophillips.com); AKDCWeIIIntegrityCoordinator, Alexander Bridge; Andrew Vandedack; Anna Raff; Barbara F Fullmer, bbritch; bbohrer@ap.org; Barron, William C (DNR); Bill Penrose; Bill Walker, Bob Shavelson; Brian Havelock; Burdick, John D (DNR); Cliff Posey, Colleen Miller, Crandall, Krissell; D Lawrence; Dave Harbour, David Boelens; David Goade; David House; David McCaleb; David Scott; David Steingreaber, David Tetta; Davide Simeone; ddonkel@cfl.rr.com; Donna Ambruz, Dowdy, Alicia G (DNR); Ed Jones; Elowe, Kristin; Evans, John R (LDZX); Francis S. Sommer, Frank Molli; Gary Schultz (gary.schultz@alaska.gov); George Pollock; ghammons; Gordon Pospisil; Gomey, David L; Greg Duggin; Gregg Nady; gspfoff, Jacki Rose; Jdarlington Oarlington@gmaii.com); Jeanne McPherren; Jerry McCutcheon; Jim White; Joe Lastufka; news@radiokenai.com; Easton, John R (DNR); John Garing; Jon Goltz; Jones, Jeffrey L (GOV); Juanita Lovett; Judy Stanek; Houle, Julie (DNR); Julie Little; Kari Moriarty, Keith Wiles; Kelly Sperback; Kiorpes, Steve T; Klippmann; Gregersen, Laura S (DNR); Leslie Smith; Lisa Parker, Louisiana Cutler, Luke Keller, Marc Kovak; Dalton, Mark (DOT sponsored); Mark Hanley (mark.hanley@anadarko.com); Mark Wedman; Kremer, Marguerite C (DNR); Michael Jacobs; Michael Moora; Mike Bill; mike@kbbi.org; Mikel Schultz; MJ Loveland; mjnelson; mkm7200; Morones, Mark P (DNR); knelson@petroleumnews.com; Nick W. Glover, Nikki Martin; NSK Problem Well Supe, Patty Alfaro; Decker, Paul L (DNR); Paul Mazzolini; Pike, Kevin W (DNR); Randall Kanady, Randy L Skillern; Randy Redmond; Rena Delbridge; Renan Yanish; Robert Brelsford; Ryan Tunseth; Sandra Haggard; Sara Leverette; Scott Griffith; Shannon Donnelly, Sharmaine Copeland; Sharon Yarawsky, Shellenbaum, Diane P (DNR); Slemons, Jonne D (DNR); Smart Energy Universe; Smith, Kyle S (DNR); Sondra Stewman; Stephanie Klemmer, Stemicki, Oliver R; Moothart, Steve R (DNR); Suzanne Gibson; sheffield@aoga.org; Tania Ramos; Ted Kramer, Davidson, Temple (DNR); Terence Dalton; Teresa Imm; Thor Cutler, Tim Mayers; Tina Grovier (tmgrovier@stoel.com); Todd Durkee; Tony Hopfinger, trmjrl; Tyler Senden; Vicki Irwin; Vinnie Catalano; Walter Featherly, yjrosen@ak.net; Aaron Gluzman; Aaron Sorrell; Ajibola Adeyeye; Alan Dennis; Andrew Cater, Anne Hillman; Bruce Williams; Bruno, Jeff J (DNR); Casey Sullivan; David Lenig; Donna Vukich; Eric Lidji; Erik Opstad; Gary Orr, Smith, Graham O (PCO); Greg Mattson; Hans Schlegel (hans.schlegel@ge.com); Heusser, Heather A (DNR); Holly Pearen; James Rodgers; Jason Bergerson; Jennifer Starck; jill.a.mcleod@conocophillips.com; Jim Magill; Joe Longo; John Martineck; Josh Kindred; Kenneth Luckey, King, Kathleen J (DNR); Laney Vazquez; Lois Epstein; Longan, Sara W (DNR); Marc Kuck; Marcia Hobson; Steele, Marie C (DNR); Matt Armstrong; Matt Gill; Franger, James M (DNR); Morgan, Kirk A (DNR); Pat Galvin; Peter Contreras; Richard Garrard; Robert Province; Ryan Daniel; Sandra Lemke, Pexton, Scott R (DNR); Peterson, Shaun (DNR); Pollard, Susan R (LAW); Talib Syed; Todd, Richard J (LAW); Tostevin, Breck C (LAW); Wayne Wooster, Woolf, Wendy C (DNR); William Hutto; William Van Dyke Subject: Public Hearing Notice, Ninilchik Pool Rules Attachments: Notice of Public Hearing CO-14-018.pdf Jody J. Colombie Special Staff Assistant Alaska Oil and Gas Conservation Commission 333 West 7th Avenue Anchorage, Alaska 99501 Jodu. Colombie a'a, laska. aov Office: (907) 793-1221 Fax: (907) 276-7542 CONFIDENTIALITY NOTICE: This e-mail message, including any attachments, contains information from the Alaska Oil and Gas Conservation Commission (AOGCC), State of Alaska and is for the sole use of the intended recipient(s). It may contain confidential and/or privileged information. The unauthorized review, use or disclosure of such information may violate state or federal law. If you are an unintended recipient of this e-mail, please delete it, without first saving or forwarding it, and, so that the AOGCC is aware of the mistake in sending it to you, contact Jody Colombie at 907.793.1221 or iody.colombie@alaska.aov David W. Duffy, Landman Hilcorp Alaska, LLC Post Office Box 244027 Anchorage, AK 99524-4027 Penny Vadla George Vaught, Jr. 399 W. Riverview Ave. Post Office Box 13557 Soldotna, AK 99669-7714 Denver, CO 80201-3557 Bernie Karl CIRI K&K Recycling Inc. Land Department Post Office Box 58055 Post Office Box 93330 Fairbanks, AK 99711 Anchorage, AK 99503 Richard Wagner Gordon Severson Post Office Box 60868 3201 Westmar Cir. Fairbanks, AK 99706 Anchorage, AK 99508-4336 Darwin Waldsmith James Gibbs Post Office Box 39309 Post Office Box 1597 Ninilchik, AK 99639 Soldotna, AK 99669 Jerry Hodgden Hodgden Oil Company 408 le St. Golden, CO 80401-2433 North Slope Borough Planning Department Post Office Box 69 Barrow, AK 99723 Jack Hakkila Post Office Box 190083 Anchorage, AK 99519 #1 Post Office Box 244027 Anchorage, AK 99524-4027 Hilcorp Alaska, LLC 3800 Centerpoint Drive Suite 100 Anchorage, AK 99503 Phone: 907/777-8300 June 11, 2014 RFCFIV,DFax: 907/777 8301 Cathy Foerster, Chair ,JUN 12 2014 Alaska Oil and Gas Conservation Commission 333 West 7th Avenue, Suite 100 AOGCC Anchorage, Alaska 99501 RE: Ninilchik Unit Initial Field and Pool Rules Application Dear Commissioner Foerster, Hilcorp Alaska, LLC ("Hilcorp"), as Operator of the Ninilchik Field, herein submits the following information in support of the establishment of the initial Field and Pool Rules for the Ninilchik Unit. Rule 1: Initial Field and Pool Rules Area These rules apply to the combined area of the then current Ninilchik Unit boundary, located on the Kenai Peninsula, both onshore and offshore, between Clam Gulch and Ninilchik, Alaska, within the area illustrated on Exhibit A. Rule 2: Pool Definition: The Ninilchik Unit Beluga/Tyonek Gas pool is defined as gas bearing intervals common to and correlating with the interval between the measured depths ("MD') of 1480' in the Paxton #5 well, and 9600' in the Paxton #1 well. Two wells are needed to define the top and bottom due to the lack of wireline logs in the Paxton #1 well. Rule 3: Gas Well Spacing There shall be no gas well spacing restrictions within the Ninilchik Field, except that no gas well shall be completed less than 1,500 feet from the exterior boundary line of the then current Ninilchik Unit unless property ownership is the same on both sides of the Unit boundary line. Rule 4: Administrative Approval 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 freshwater. Hilcorp Alaska, LLC Proposed Rules re Ninilchik Unit June 11, 2014 Page 2 of 7 The Ninilchik Unit became effective on October 1, 2001 and encompasses approximately 16 miles of the Ninilchik anticline along the coastline from the approximately Clam Gulch to just north of the town of Ninilchik, Alaska. This anticline is segmented by a number of crosscutting faults along the crest of the structure. At the time of unit formation, the field was operated by Marathon Oil Company ("Marathon"). Marathon owned a 60% working interest. Union Oil Company of California ("Union") held the remaining 40% working interest. Hilcorp acquired Union's interest in the Ninilchik unit on January 1, 2012. On February 2, 2013, Hilcorp acquired Marathon's interest and became Operator. Hilcorp now holds a 100% working interest in the Ninilchik Unit. At formation, the Ninilchik Unit consisted of approximately 25,167 acres, of which approximately 19,999 acres were held by 10 State of Alaska Oil and Gas Leases. Of the remaining 5,728 acres, federal lands encompass 222.67 acres a, university of Alaska lands encompass 661.35 acres, Cook Inlet Region, Inc. ("CIRI") lands encompass 1528 acres, and patented fee lands encompass 3336.34 of the unit area. Approval of the Ninilchik Unit Agreement served to conform and modify each lease to be consistent with the agreement, including the extension of the term of lease for as long as they are subject to the Unit. In April 2002, AOGCC granted a spacing exception pursuant to 20 AAC 25.055(a)(2) to allow the drilling of the Falls Creek #1 RD ("FC-1RD") exploratory well within 1500' of a property line. See Conservation Order 468. In June 2002, AOGCC granted a spacing exception pursuant to 20 AAC 25.055(a)(2) to allow the drilling and testing of the Susan Dionne No. 3 ("SD -3") well within 1500 feet of the property line. In March 2003, Marathon petitioned the Department of Natural Resources to expand the Ninilchik Unit to encompass the former federal Falls Creek Unit area and to form the Falls Creek, Grassim Oskolkoff and Susan Dionne Participating Areas. See Exhibit A. Simultaneous with the DNR application, Marathon and Union requested that the U.S. Department of Interior, Bureau of Land Management (`BLM") terminate the federal Falls Creek Unit. The state -approved unit expansion covered approximately 630 acres, bringing the total unit acreage to 25,797.15 acres.1 In the spring of 2003, Marathon acquired 3D seismic data over the majority of the Ninilchik Unit area. 1 See Ninilchik Unit, First Expansion of the Unit Area, Findings and Decisions of the Director, Division of Oil and Gas, Department of Natural Resources, State of Alaska (June 30, 2003). Hilcorp Alaska, LLC Proposed Rules re Ninilchik Unit June 11, 2014 Page 3 of 7 In June 2003, pursuant to 20 AAC 25.055(a)(2), the AOGCC granted a spacing exception to allow the drilling and testing of the SD -3 within 1500 feet of the property line. See Conservation Order No. 491. In February 2004, pursuant to 20 AAC 25.055(a)(2) and (4), the AOGCC granted a spacing exception to allow the Falls Creek No. 4 ("FC -4") be drilled as a gas development well within 900' of the FC -3 and less than 1500 feet of the nearest property line. See Conservation Order 511. In May 2004, Marathon successfully drilled the Paxton No. 1 ("Pax -1") exploration well from the Paxton Pad, located within the southern portion of the Ninilchik Unit. This on- shore directional well is drilled to a bottom -hole location approximately 0.6 miles offshore. DNR subsequently approved production of Pax -1 as a tract operation. In October 2004, the AOGCC issued Conservation Order No. 537 to permit the regular production of the FC- 1RD, FC -3 and SD -3 gas development wells. This order cured the prohibition from production accompanied in each of the individual spacing orders granted for the referenced wells. See Conservation Orders 461 (regarding FC-1RD), Conservation Order 472 (regarding SD -3), and Conservation Order 491 (regarding FC - 3). In November 2005, pursuant to 20 AAC 25.055(a)(4), the AOGCC granted a spacing exception to allow the drilling of the Grassim Oskolkoff No. 4 (GO -4) exploratory well within 3000' of GO -1 well. See Conservation Order 560. In June 2006, the AOGCC approved an exception to the spacing requirements of 20 AAC 25.055(a)(2) for the purpose of drilling, completion, testing and regular production in the Ninilchik State No. 2 well ("NS -2"). This Tyonek well was designed to delineate the down -dip extent of producing gas reservoirs within the Susan Dionne Participation Area. See Conservation Order No. 567. In December 2006, the DNR approved Marathon's application for a tract operation for the Ninilchik State No. 1 well ("NS -1"). This approval allowed the allocation of production from the well to State of Alaska Oil and Gas Lease number ADL 389180. In January 2007, the AOGCC approved an exception to the spacing requirements of 20 AAC 25.055(a)(4) for the drilling, completion, testing and regular production of the Ninilchik State No. 3 ("NS -3") gas delineation well within 3000 feet of the NS 1 well. NS -3 targeted gas reservoirs in the Tyonek Formation within the Grassim Oskolkoff Participating Area. See Conservation Order No. 580. In December 2007, the AOGCC approved an exception to the spacing requirements of 20 AAC 25.055(a)(2) to provide for the drilling, completion testing and regular production of the Paxton No. 2 gas well within 3000 feet of the Pax -1 well within the proposed Susan Dionne/Paxton Participating Area. See Conservation Order 592. Hilcorp Alaska, LLC Proposed Rules re Ninilchik Unit June 11, 2014 Page 4 of 7 In December 2007, DNR approved Marathon's application to expand the Susan Dionne Participating Area to include approximately 2122 acres located on the southern end of the southwest -northeast trending Ninilchik anticline. Today, this area is known as the Susan Dionne -Paxton Participating Area.2 In October 2008 the AOGCC approved exception to the spacing requirements of 20 AAC 25.055(a)(4) to allow the drilling, completion, testing and regular production of the Susan Dionne No. 6 ("SD -6") gas development well within 3,000 feet of the SD -1, SD -2, SD-3,SD-4 and SD -5 wells. SD -6 targeted production from the Tyonek and Beluga Formations and is located within the Susan Dionne -Paxton Participating Area. See Conservation Order 607. In November 2009, pursuant to 20 AAC 25.055(a)(4), the AOGCC granted a spacing exception to allow the Paxton No. 3 (Pax -3") be drilled as a gas development well less than 300' from other wells capable of producing form the Beluga and Tyonek formations. See Conservation Order 626. In March 2010, pursuant to 20 AAC 25.055(a)(4), the AOGCC granted a spacing exception to allow the Paxton No. 4 (Pax -4") be drilled as a gas development well less than 300' from the Pax -3 well. This spacing exception was approved for the Beluga formation. See Conservation Order 628. In May 2011, pursuant to 20 AAC 25.055(a0(4), the AOGCC granted a spacing exception to allow the Susan Dionne No. 7 ("SD -7") to be drilled, tested, completed and produced within 3000' of the SD -3, SD -4 and Pax -1 wells, each of which produce from the Tyonek formation. See Conservation Order 648A. In December 2013, pursuant to 20 AAC 25.055(a)(2) and (4), the AOGCC granted a spacing exception to allow the Susan Dionne No. 2A ("SD -2A") gas development well to be drilled tested, completed and produced within 3000' of other wells and within 1500' of a property line. See Conservation Order 682. In July 2013, pursuant to 20 AAC 25.055(a)(2), the AOGCC granted a spacing exception to allow the Paxton No. 5 ("Pax -5") exploratory gas wells to be produced within 1500' of a property line where the o owner and landowner are not the same on both sides of the property line. See Conservation Order 672. In March 2014, pursuant to 20 AAC 25.055(a)(2) and (a)(4) to allow drilling completing, testing and production of Falls Creek 5 ("FC -5") within 1500' of property lines where 2 See Ninilchik Unit, Consolidation, Findings and Decisions of the Director, Division of Oil and gas, Department of Natural Resources, State of Alaska (June 30, 2003). Hilcorp Alaska, LLC Proposed Rules re Ninilchik Unit June 11, 2014 Page 5 of 7 ownership is different and within 3000' of other wells capable of producing from the same pools. DISCUSSION Hilcorp's proposed rules are designed to prevent waste, protect correlative rights and improve the ultimate recovery of remaining hydrocarbons throughout the Ninilchik Field. They are also designed to reduce the administrative burdens on both Hilcorp and AOGCC staff. As the 100% working interest owner and sole operator of the field, Hilcorp's objective is to maximize the recovery of remaining hydrocarbons from the Ninilchik Field. In addition to continued exploration outside of existing producing areas, Hilcorp will continue its implementation of a comprehensive capital workover program designed to: • return shut in production wells to service • optimize existing well completions • pursue stimulation opportunities, and • identify, then execute new drilling projects The Ninilchik Field currently consists of 28 wells, of which 21 are currently online and 7 shut-in. During 2014-2015, Hilcorp anticipates performing of approximately 3 workovers. In addition, Hilcorp anticipates drilling 0 exploratory wells and 4 development wells targeting gas production. Going forward, Hilcorp anticipates continued focus on gas development wells within the Tyonek and Beluga sands. Hilcorp cannot efficiently produce remaining reserves under AOGCC's current well spacing rules. While existing rules and procedures may have adequately protected correlative rights and prevented waste during the field's initial development, they are not applicable to the effort necessary to explore and produce remaining hydrocarbon reserves. As discussed above, Hilcorp, as Operator, is sole working interest owner of the Ninilchik Unit. The unit is comprised of 25,823.99 acres, of which 232.9 acres (0.9%) is under federal lease, 20, 015.13 acres (77.5%) is under state lease, 661.35 acres (2.56%) is leased to the University of Alaska, 1,519.65 acres (5.88% is leased to Cook Inlet, Region, Inc. ("CIRI"), and 3,394.96 acres (13.1465%) is patented fee lands. Such submittals are administratively burdensome and are unnecessary to protect correlative rights, particularly were in cases where a well is simply being optimized or reactivated within the same pool. Hilcorp Alaska, LLC Proposed Rules re Ninilchik Unit June 11, 2014 Page 6 of 7 In addition to reducing administrative burdens, the proposed order is designed to prevent economic and physical waste and improve the ultimate recovery of remaining hydrocarbons. By eliminating intra -pool spacing rules, Hilcorp will be able to target smaller, un -drained portions of isolated fault blocks that cannot be reached by wells conforming to current spacing restrictions. Elimination of all spacing requirements will help to maximize recovery from these bypassed pay, while allowing for continued production from established development wells. Hilcorp would be pleased to schedule a technical meeting with AOGCC staff to provide additional information in support of this proposal. Should you have any other questions regarding this proposal, please do not hesitate to contact the undersigned at 777-8341. Sincerely, David W. Duffy, Landman Hilcorp Alaska, LLC Confidential Enclosures: • Geologic Report • Reservoir Report Hilcorp Alaska, LLC Proposed Rules re Ninilchik Unit June 11, 2014 Page 7 of 7 Exhibit A IN012W SO 0:1 SO14VV 5001 S01 3W Soo 01 2w Legend ® Oil and Gas U nit Boundary PA Boundary Exhibit A 0 97550 ,g rscq Ninilchik Unit Feet Field and Pool Rules Area "iWaV-5MPdle2om. 7 .V i.ha. I.I.I. Reservoir and Geologic Reports held confidential in secure storage