STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

3001 Porcupine Drive

Anchorage Alaska 99501-3192
Re:THE APPLICATION OF Z-ENERGY                   )  Conservation Order No. 338
INC. for an order granting an exception          )
to spacing requirements of Title 20 AAC          )  Z-ENERGY INC.
25.055 to provide for the drilling of the        )  North Beluga River 12-2
North Beluga River 12-2 exploratory              )  Exploratory Gas Well
gas well.                                        )
                                                    August 19, 1994
IT APPEARING THAT:

1. Z-ENERGY INC. submitted an application dated May 9, 1994, requesting an exception to 20 AAC 25.055 to allow drilling the Z-ENERGY INC. North Beluga River 12-2 exploratory gas well closer than 1500 feet to a drilling unit boundary.

2. Notice of hearing was published in the Anchorage Daily News on May 11, 1994, pursuant to 20 AAC 25.540.

3. ARCO Alaska, Inc. filed a protest to the application on May 26, 1994.

4. A hearing was convened on the matter June 10, 1994 at the commission offices in Anchorage, and recessed later that day until July 12, 1994.

5. Testimony was given by Z-ENERGY INC. and ARCO Alaska, Inc.

6. The hearing reconvened on July 12, 1994, and closed later that day.

FINDINGS:

1. 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 be practicably 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(2).

2. Each well permitted to be drilled on a drilling unit shall be drilled under the rules and regulations and in accordance with the spacing pattern as the commission prescribes for the pool in which the well is located. Exceptions to the rules and spacing pattern may be granted where it is shown, after notice and hearing, that the unit is partly outside the pool, or for some other reason a well so located on the unit would be nonproductive, or topographical conditions are such as to make the drilling at such a location unduly burdensome. AS 31.05.100(b).

3. A governmental section constitutes the drilling unit for gas exploration; a well exploring for gas must be at least 1500 feet from the drilling unit boundary. 20 AAC 25.055.

4. The spacing exception application for the Z-ENERGY INC. North Beluga River 12-2 exploratory gas well proposes a bottom-hole location 1200 feet from the south line (FSL) and 300 feet from the east line (FEL) of Section 12, T13N, R10W, Seward Meridian. Actual surface location for the NBR 12-2 exploratory gas well is undecided at this time.

5. Z-ENERGY INC. has been assigned 100% working interest in State lease ADL 381224, which includes the E1/2 of Section 11, T13N, R10W, SM and all of Section 12, T13N, R10W, SM less U.S. Survey 3901. This lease lies adjacent to the Beluga River Unit.

6. The proposed bottom-hole location for the Z-ENERGY INC. well is approximately 3025 feet northwest of the closest Beluga River Unit production well (BRU 212-18), located 1799' FNL, 100' FWL, Section 18, T13N, R9W, SM.

7. The Burglin X33-12 well was drilled during the winter of 1976-77 to a bottom-hole location 1827' FSL, 2347' FEL, Section 12, T13N, R10W, SM; it was plugged and abandoned on January 23, 1977.

8. Z-ENERGY INC. stated it selected the bottom-hole location for NBR 12-2 well to maintain the 3000-foot standoff requirement of 20 AAC 25.055 and position the well more favorably on the Beluga River structure and to an inferred fault. Z-ENERGY INC. believes the fault affects the distribution of gas pay on its lease.

9. Z-ENERGY INC. portrayed lineaments on aerial photographs to support its claim of faulting.

10. ARCO Alaska Inc. stated that its interpretation of area seismic data does not support Z-ENERGY INC. claims of faulting. ARCO Alaska, Inc. did not submit its seismic data for inclusion into the public record.

11. No significant disagreement exists between Z-ENERGY INC. and ARCO Alaska, Inc. regarding Sterling "A" structural interpretation.

12. Based on volumetric and material balance calculations, ARCO Alaska, Inc. has determined the BRU 212-18 will drain that portion of the Beluga formation reservoir equivalent to a radius of 1690 feet.

13. ARCO Alaska, Inc. does not object to the drilling of the NBR 12-2 well, but protests the production of the well as a possible violation of its correlative rights.

14. The commission has not established pool rules for the Beluga River Unit or adjacent area.

15. A completed well means a well that has been drilled and equipped as a producible or service well. 20 AAC 25.570.

CONCLUSIONS:

1. An exception to 20 AAC 25.055(a)(2) is necessary to allow drilling of the NBR 12-2 well at the proposed location.

2. The commercial limits of the undefined Beluga River accumulation common to Beluga River Unit 212-18 well are not known to extend to the Burglin X33-12 well.

3. If the commercial limits extend onto the Z-ENERGY INC. lease, then the Z-ENERGY INC. drilling unit is partially outside the undefined Beluga River accumulation.

4. Granting the spacing exception will assure Z-ENERGY INC. of its opportunity to prove whether or not commercial quantities of gas exist on a portion of its lease.

5. Completion of the NBR 12-2 well will preclude ARCO Alaska, Inc. from drilling a well to the same pool on its acreage closer than 3000 feet to the NBR 12-2 exception location without first obtaining its own exception to 20 AAC 25.055.

6. The commission must take such action as will offset any advantage which the person securing the exception may have over other producers by reason of the drilling of the well as an exception, and so that drainage from developed units to the tract with respect to which the exception is granted will be prevented or minimized, and the producer of the well drilled as an exception will be allowed to produce no more than a just and equitable share of the oil and gas in the pool. AS 31.05.100(b)

NOW, THEREFORE, IT IS ORDERED:

Z-ENERGY INC.'s application for an exception to 20 AAC 25.055 for the purpose of drilling the North Beluga River 12-2 exploratory gas well to a bottom-hole location 1200 feet from the south line (FSL) and 300 feet from the east line (FEL) of Section 12, T13N, R10W, Seward Meridian is approved under the following conditions.

1. The NBR 12-2 exploratory gas well must be logged and tested to determine the well's potential to produce commercial quantities of hydrocarbons and to determine if communication exists with other Beluga River producing wells.

2. The NBR 12-2 well may not be completed until the commission takes additional action, upon petition and after notice and hearing, to (a) offset any advantage Z-ENERGY INC. may have over other owners by reason of drilling NBR 12-2 to the exception location, (b) prevent or minimize drainage from the Beluga River Unit to ADL 381224, and (c) allow affected owners to produce their just and equitable share of hydrocarbons.

DONE at Anchorage, Alaska and dated August 19, 1994.

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

Tuckerman Babcock, Commissioner
Alaska Oil and Gas Conservation Commission

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

Conservation Order Index