Re: Decision concerning the request of ARCO       ) Addendum
    Alaska, Inc. to include certain portions      ) Conservation Order No. 329
    of ADL 34626 and ADL 34629 in the Niakuk      ) Prudhoe Bay Field
    pool rules area.                              ) Niakuk Oil Pool

                                                    January 11, 1994

IT APPEARING THAT

1. In response to a petition by BP Exploration (Alaska) Inc., a hearing to establish pool rules for the Niakuk reservoir was convened in conformance with 20 AAC 25.540 at the Commission's offices, 3001 Porcupine Dr. Anchorage, Alaska 99501 at 9:00 am October 28, 1993.

2. ARCO Alaska, Inc. requested that Section 22 of ADL 34626 and Section 27 of ADL 34629 be included in the Niakuk pool rules area.

3. BP Exploration (Alaska) Inc. objected to the request of ARCO Alaska, Inc.

4. The Commission requested each side to submit written comments addressing statutory guidelines and legal argument for defining the areal limits of a pool.

5.The hearing was reconvened on November 15, 1993 at 9:00 am.

6. Testimony was offered by BP Exploration (Alaska) Inc., ARCO Alaska, Inc., Exxon Company, U.S.A. and the Alaska Department of Natural Resources, Division of Oil and Gas.

7. The hearing record was closed December 3, 1993, following submittal of post-hearing briefs.

Findings:

1. Upon the motion of the Commission, or the request of an affected property operator or owner at any time after the discovery of oil or gas in a field or pool, a hearing will be held in accordance with 20 AAC 25.540 and the Commission will issue an order, based upon the evidence presented, classifying the pool as an oil or gas pool in a field and prescribing rules for its development. 20 AAC 25.520.

2. A pool order so issued will prevent waste, protect freshwater and protect correlative rights, and be based on the operating and technical data presented. 20 AAC 25.520.

3. Before the development and operation of an oil or gas pool, the operator shall submit to the Commission for approval a plan of development and operation for the pool or the portion of the pool for which development is contemplated by the operator. 20 AAC 25.517

4. Correlative rights mean the opportunity afforded, so far as it is practicable to do so, to the owner of each property in a pool to produce without waste the owner's just and equitable share of the oil or gas , or both, in the pool; being an amount, so far as can be practically determined, and so far as can practicably be obtained without waste, substantially in the proportion that the quantity of recoverable oil or gas, or both, under the property bears to the total recoverable oil or gas or both in the pool, and for such purposes to use the owner's just and equitable share of the reservoir energy. AS 31.05.170.

5. In the absence of special pool rules adopted under 20 AAC 25.520, a governmental quarter section constitutes the drilling unit for oil exploration, and the well's location must be 500 feet from the drilling unit boundary. 20 AAC 25.055.

6. Where oil has been discovered, not more than one well may be drilled to that pool on any governmental quarter section, nor may any oil pool be opened to the well bore closer than 500 feet to any quarter section line, nor closer than 1000 feet to any well drilling to or capable of producing from the same pool. 20 AAC 25.055.

7. The Niakuk reservoir is within the Kuparuk River Formation. The reservoir consists of two elongated, oil-bearing segments bounded on the north and south by normal faults. Lateral heterogeneity, abrupt facies change, and moderate displacement faulting characterize the Niakuk reservoir.

8. The western limit of the Niakuk oil accumulation is uncertain.

9. The area planned for development by BP Exploration (Alaska) Inc. consists of approximately 1855 acres underlying portions of ADL leases 34625, 34630, 34634, and 34635. BP Exploration (Alaska) Inc. is operator and 100% working interest owner of these leases.

10. BP Exploration (Alaska) Inc. proposes to develop the Niakuk reservoir by drilling 9 producing wells and 5 injection wells. It has requested 40 acre well spacing to allow latitude in selecting well locations because of the elongate shape, small size, and structural and stratigraphic complexity of the reservoir.

11. ARCO Alaska, Inc. and Exxon Company, U.S.A. jointly own ADL 34626 and ADL 34629, which immediately abut the BP Exploration (Alaska) Inc. acreage on the west.

12. ARCO Alaska, Inc. submitted seismic evidence that suggests that the formation and structure proposed for development by BP Exploration (Alaska), Inc. extends onto its acreage. ARCO Alaska, Inc. states that there is a consistent seismic character coincident with the upper portion of the Kuparuk River Formation that extends throughout Segment 1 of the Niakuk reservoir and continues onto the ARCO/Exxon leases.

13. Given this consistent seismic character and the up dip position of its leases, ARCO Alaska, Inc. asserts that reservoir quality sandstone is reasonably estimated to underlie Sections 22 and 27 of ADL 34626 and ADL 34629, respectively.

14. ARCO Alaska, Inc. states that recoverable reserves exist on the ARCO/Exxon leases, which must be included within the pool rules boundary to protect correlative rights, avoid waste and insure greater ultimate recovery of oil and gas.

15. The existence of Kuparuk River Formation underlying the ARCO/Exxon leases is uncontested by all parties.

16. The Niakuk 1 and 1A wells, drilled on ADL 34630, encountered measurable hydrocarbon saturation in the Kuparuk River Formation, but were not tested.

17. The Gull Island 1 well, drilled on ADL 34626, encountered non-oil bearing Kuparuk River Formation.

18. The Gull Island 3 well, drilled on ADL 34629, is still confidential, but was drilled to a depth of 9945 feet TVD and plugged and abandoned on March 14, 1992.

19. BP Exploration (Alaska) Inc. submitted evidence to suggest that the presence of oil bearing strata cannot be correlated with seismic amplitude, and asserts it is unreasonable in a field as geologically complex as Niakuk to extrapolate the presence of reservoir quality rock using seismic data to the extent proposed by ARCO Alaska, Inc.

20. BP Exploration (Alaska) Inc. objects to including the ARCO/Exxon acreage in the Niakuk pool rules area unless drilling confirms the presence of oil bearing strata underlying that acreage.

21. Alaska Department of Natural Resources, Division of Oil and Gas asserts that seismic character cannot infer the presence of reservoir quality rock in the absence of well data confirming the existence of oil beneath the ARCO/Exxon leases.

22. Alaska Department of Natural Resources, Division of Oil and Gas, as the royalty owner, states it would be inappropriate to delay commercial production from the Niakuk reservoir. It opposes any restriction that could delay production beyond the anticipated April 1994 startup date.

23. Exxon Company, U.S.A. recognizes that there is uncertainty as to the western boundary of the Niakuk oil accumulation.

24. Exxon Company, U.S.A. wants to ensure that its correlative rights are protected and to participate in development of the pool if reservoir quality rock capable of commercial production extends beneath it leases.

25. Exxon Company, U.S.A. states that imposition of statewide spacing rules in the Niakuk reservoir will protect its correlative rights pending determination of commercial production under its leases.

26. Should the ARCO/Exxon leases prove capable of commercial production, Exxon Company, U.S.A. asserts that unitized management and development of the pool will be necessary to insure the greatest ultimate recovery and to protect the correlative rights of all persons owning rights to the pool.

27. No wells have been drilled to the Kuparuk River Formation on Section 22 of ADL 34626 and Section 27 of ADL 34629.

28. ARCO Alaska, Inc. stated that it is committed to drilling a well to confirm that the ARCO/Exxon acreage is capable of producing or contributing to the production of hydrocarbons in paying quantities.

29. Exxon Company, U.S.A. stated that it has agreed with ARCO Alaska, Inc. on the bottomhole location for a well, but final corporate approval is pending evaluation of the economic and technical merits.

Conclusions:

1. It has not been shown that the Niakuk oil pool extends into the ARCO/Exxon leases. Without the benefit of well data in close proximity, seismic character and structural dip do not demonstrate the presence of reservoir quality rock capable of commercial hydrocarbon production.

2. Irrespective of whether the Niakuk oil pool extends into the ARCO/Exxon leases, BP Exploration (Alaska) Inc. is not proposing to develop the ARCO/Exxon leases.

3. ARCO Alaska, Inc. and Exxon Company, U.S.A. are not prevented from drilling a well to Section 22 of ADL 34626 or Section 27 of ADL 34629.

4. In the absence of evidence to the contrary, statewide spacing rules are presumed appropriate for preventing waste, protecting correlative rights and insuring the greatest ultimate recovery.

5. No evidence has been presented to suggest that statewide spacing rules will not protect correlative rights, prevent waste and insure the greatest ultimate recovery for that portion of the Niakuk reservoir contemplated for development by BP Exploration (Alaska) Inc.

6. The request of BP Exploration (Alaska) Inc. for 40 acre spacing is intended to provide flexibility in well siting because of the geologic complexity of the Niakuk reservoir; it is not intended as a means for drilling an excessive number of wells to the reservoir.

7. The opportunity afforded ARCO Alaska, Inc. and Exxon Company, U.S.A. to produce Section 22 of ADL 34626 and Section 27 of ADL 34629 is unencumbered by the Commission's approval of pool rules for that area of the Niakuk reservoir contemplated for development by BP Exploration (Alaska) Inc.

8. Should commercial quantities of oil and gas be encountered on either ADL 34626 or ADL 34629, ARCO Alaska, Inc. or Exxon Company, U.S.A. may petition the Commission for pool rules for that portion of the pool for which development is contemplated.

9. Should it be determined that a common accumulation of oil and gas exists and should the parties fail to voluntarily integrate their interests, ARCO Alaska, Inc., Exxon Company, U.S.A., or BP Exploration (Alaska) Inc. may petition the Commission for an order to provide unitized management, development and operations of the Niakuk reservoir.

10. The decision whether or not to drill a well to their acreage rests solely with ARCO Alaska, Inc. and Exxon Company, U.S.A.

11. The fact that ARCO Alaska, Inc. and Exxon Company, U.S.A. have yet to drill a well that demonstrates the commercial viability of the Kuparuk River Formation under Section 22 of ADL 34626 or Section 27 of ADL 34629 is no reason to delay the Niakuk development plans of BP Exploration (Alaska) Inc.

12. The rights of ARCO Alaska, Inc., Exxon Company, U.S.A. and BP Exploration (Alaska) Inc. to produce their just and equitable share of Niakuk production can be assured by imposing well spacing restrictions consistent with the intent of statewide rules.

13. The pool rules issued by the Commission for that portion of the Niakuk oil pool proposed for development by BP Exploration (Alaska) Inc. will prevent waste, protect freshwater and protect the correlative rights of ARCO Alaska, Inc. and Exxon Company, U.S.A. and others.

14. It is not necessary or appropriate at this time to prescribe pool rules for a larger area than that currently proposed for development by BP Exploration (Alaska) Inc.

Now therefore it is ordered that:

1. Pool rules for that portion of the Niakuk reservoir contemplated for development by BP Exploration (Alaska) Inc. are appropriate at this time, and

2. Based on available data, the request of ARCO Alaska, Inc. to include Section 22 of ADL 34626 and Section 27 of ADL 34629 in the area subject to the Niakuk pool rules is denied.

DONE at Anchorage, Alaska and dated January 11, 1994.

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

Russell A. Douglass, Commissioner
Alaska Oil and Gas Conservation Commission

Tuckerman Babcock, Commissioner
Alaska Oil and Gas Conservation Commission

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