STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

3001 Porcupine Drive

Anchorage, Alaska 99501-3192

Re: THE APPLICATION OF ALASKAN ) Conservation Order No. 254
CRUDE CORPORATION, to estab- )
lish a 640 acre drilling )
unit for the Mike Pelch #1 )
well )
June 8, 1990
IT APPEARING THAT:

1. Conservation Order #210, dated May 31, 1985, permitted Far North Oil and Gas, Inc. to re-enter the abandoned Cannery Loop Unit #2 well to explore for hydrocarbons.

2. In the event of hydrocarbon discovery upon re-entering the Cannery Loop Unit #2 well, Conservation Order #210 denies permission to place the well on regular production until a drilling unit for the well is established and persons owning mineral interests in the drilling unit have pooled their interests.

3. By a March 20, 1990 letter, Alaskan Crude Corporation, operator of record for the Mike Pelch #1 (formerly Cannery Loop Unit #2) well, states that the Mike Pelch #1 well has established natural gas production and requests AOGCC to establish a 640 acre drilling unit in accord with AS 31.05.100.

4. Notice of a public hearing on the matter of Alaskan Crude's request was published March 23, 1990 in the Anchorage Daily News.

5. A public hearing on the matter was held May 10, 1990 in the conference room of the AOGCC, 3001 Porcupine Drive, Anchorage, AK.

FINDINGS:

1. The Alaskan Crude Corporation Mike Pelch #1 well is reported to be capable of producing natural gas from sands occurring within the drilled depth interval of 9252-9326 feet.

2. No evidence has been presented that the well has been tested in accordance with 20 AAC 25.225.

3. Alaskan Crude Corporation and others claiming to own mineral interests in the Mike Pelch #1 well want to place the well on regular production for natural gas sale.

4. Conservation Order #210 prohibits placing the Mike Pelch #1 well on regular production until a drilling unit for the well has been established.

5. Conservation Order #210 further prohibits placing the Mike Pelch #1 well on regular production until persons owning drilling rights and the right to share in the production from the drilling unit reach a voluntary agreement pooling their interests or until an order pooling these interests is issued by the commission in accordance with AS 31.05.100(c).

6. Alaskan Crude Corporation proposes a 640 acre drilling unit for the Mike Pelch #1 well consisting of the NW 1/4, SW 1/4, Sect 1 T5N R11W (40 acres); the W 1/2 NW 1/4, Sect 1 T5N R11W (80 acres); the N 1/2 SE 1/4 Sect 2 T5N R11W (80 acres); the NE 1/4 SW 1/4 Sect 2 T5N R11W (40 acres); the E 1/2 NW 1/4 Sect 2 T5N R11W (80 acres); the NE 1/4 Sect 2 T5N R11W (160 acres); the SE 1/4 SW 1/4 Sect 35 T6N R11W (40 acres); the S 1/2 SE 1/4 Sect 35 T6N R11W (80 acres); and the SW 1/4 SW 1/4 Sect 36 T6N R11W (40 acres) for a total of 640 acres.

7. The Mike Pelch #1 well is located on a 120 acre parcel of fee land owned by Pelch and subject to an oil and gas lease to Far North Oil and Gas Inc.

8. Several persons other than Far North Oil and Gas Inc. have the right to drill for and produce gas on tracts of land other than the Pelch tract that are within the boundary of the proposed drilling unit.

9. The boundary for the 640 drilling unit proposed by Alaskan Crude Corporation approximates a drilling unit constructed on the circle-tangent principal.

10. No testimony was offered in opposition to the boundary of the 640 acre drilling unit proposed by Alaskan Crude Corporation.

11. No testimony was offered by persons owning mineral interests in tracts of land within the proposed drilling unit that opposed the voluntary development of an agreement to pool their interests within the proposed 640 acre drilling unit.

12. Alaskan Crude Corporation has not contacted other persons holding mineral interest within the proposed 640 acre drilling unit with a proposed agreement for pooling their interests.

13. Persons holding interests in the proposed 640 acre drilling unit have been invited by a James A White representing the Peninsula Pipeline Company to establish a fair and equitable agreement for pooling their interests within the boundary of the drilling unit.

14. Peninsula Pipeline Company does not appear to have a right to drill for or share in the production from any lands within the proposed drilling unit.

15. Persons holding interests in lands within the proposed drilling unit have unsuccessfully sought from Alaskan Crude Corporation a draft proposal of an agreement pooling their interests in the drilling unit along with other information necessary for them to make an intelligent business decision regarding the sharing of costs and production.

16. 20 AAC 25.055(a)(4) sets forth a governmental section (640 acres) as the size for a natural gas well drilling unit.

17, A 640 acre drilling unit is widely accepted by industry and regulatory bodies in other jurisdictions as the normal or properly sized drilling unit for a natural gas well.

CONCLUSIONS:

1. Establishment of a 640 acre drilling unit for the Mike Pelch #1 well is appropriate.

2. The boundary proposed by Alaskan Crude Corporation for the Mike Pelch #1 drilling unit is appropriate.

3. The door is open for mineral interest owners of tracts within the proposed Mike Pelch #1 drilling unit to negotiate voluntarily an agreement pooling their interests pending receipt from Alaskan Crude Corporation of a draft agreement and sufficient data on cost and production rewards necessary to make a business decision with respect to adopting a pooling agreement.

4. Absent a well test by the multi-point back-pressure method as required by 20 AAC 25.225, the potential and productivity of the Mike Pelch #1 well and the well's capability to sustain gas production prevents tract mineral interest owners from making a prudent business judgement at this time with respect to entering an agreement to pooi their interests.

5. Determination of the well's potential and the actual and reasonable cost of development and operation of the drilling unit is necessary for tract mineral interest owners to proceed with development of an agreement pooling these interests.

6. These data can best be developed by placing the well on regular production for a reasonable period of time to develop operating costs and test the well in accord with 20 AAC 25.225.

7. An amendment to Conservation Order #210 is required to permit regular production for a reasonable time to evaluate the Mike Pelch #1 well's potential and operating cost data.

8. Development by the commission of an order to involuntarily pool the interests of tract mineral owners within the proposed Mike Pelch #1 drilling unit is not ripe at this time for commission action under AS 31.05.100(c).

NOW THEREFORE, IT IS ORDERED:

1. The Mike Pelch #1 well 640 acre drilling unit is established comprising NW 1/4, SW 1/4, Sect 1 T5N R11W (40 acres); the W 1/2 NW 1/4, Sect 1 T5N R11W (80 acres); the N 1/4 SE 1/4 Sect 2 T5N R11W (80 acres); the NE 1/4 SW 1/4 Sect 2 T5N R11W (40 acres); the E 1/2 NW 1/4 Sect 2 T5N R11W (80 acres); the NE 1/4 Sect 2 T5N R11W (160 acres); the SE 1/4 SW 1/4 Sect 35 T6N R11W (40 acres); the S 1/2 SE 1/4 Sect 35 T6N R11W (80 acres); and the SW 1/4 SW 1/4 Sect 36 T6N R11W (40 acres) for a total of 640 acres.

2. Conservation Order #210 is amended to read:

NOW, THEREFORE, IT IS ORDERED:

With an approved Drilling Permit, Far North Oil and Gas, Inc. is permitted to re-enter the abandoned Cannery Loop Unit No. 2 well to explore for hydrocarbons. If the well proves to be capable of hydrocarbon production, regular production will not be permitted until the commission has established a drilling unit for the pool and issues an order integrating the interests of owners within the drilling unit, absent voluntary integration by the owners[.] , or until the commission is furnished by the operator of the Mike Pelch #1 well with a copy of an agreement, certified by the operator to be signed by all persons with a right to drill for and share in the production from lands within the Mike Pelch #1 well drilling unit, to produce the well for a six month period following the date of initial production.

3. Absent the filing of a voluntary agreement with the commission, as required by 20 AAC 25.517(c), validly integrating the interest of persons owning mineral interests on lands within the Mike Pelch #1 drilling unit to pool their interests within six months following the date of initial production, the operator shall shut the well in.

4. In the event of failure to reach voluntarily a pooling agreement within six months following initial production, the operator shall submit to the commission a certified audit report setting out the operator's actual and reasonable expenditures covering the costs of development and operation of the Mike Pelch #1 well, unless the operator determines that production from the well is no longer appropriate.

DONE at Anchorage, Alaska and dated June 8, 1990.

C. V. Chatterton, Chairman
Alaska Oil and Gas Conservation Commission

David W. Johnston, Commissioner
Alaska Oil and Gas Conservation Commission

Lonnie C. Smith, Commissioner
Alaska Oil and Gas Conservation Commission

Conservation Order Index