STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

3001 Porcupine Drive

Anchorage Alaska 99501-3192

Re: THE APPLICATION OF ARCO ) Conservation Order No.406
ALASKA, INC. to present testimony )
for classification of a new pool and the ) Kuparuk River Field
establishment of pool rules for ) West Sak Oil Pool
development of the West Sak Oil Pool )
in the Kuparuk River Field. )
October 16, 1997

IT APPEARING THAT:

1. By letter dated June 23, 1997, ARCO Alaska, Inc. (ARCO) requested a public hearing to present testimony to define the West Sak Oil Pool and establish pool rules for development and production of the reservoir.

2. Notice of public hearing to be held on July 30, 1997 was published in the Anchorage Daily News on June 26, 1997.

3. Correspondence dated July 29, 1997 from the Department of Revenue provided information relevant to surface commingling of production between the Kuparuk River and West Sak Oil Pools.

4. A hearing concerning the matter of the applicant’s request was convened in conformance with 20 AAC 25.540 at the Commission’s offices, 3001 Porcupine Drive, Anchorage, Alaska 99501 at 9:00 am on July 30, 1997.

5. The hearing was continued until August 7, 1997. The applicant submitted additional information in correspondence dated August 7, 1997.

FINDINGS:

1. The West Sak is the informal name applied to a sequence of oil-bearing very fine to fine grained, unconsolidated sandstones and moderately indurate siltstones and mudstones of Late Cretaceous age that were discovered in 1971 through the drilling and testing of the West Sak No. 1 well.

2. The West Sak No.1 well is located in the Kuparuk River Unit in Section 2, Township 11 North, Range 10, East Umiat Meridian.

3. The vertical limits of the West Sak Oil Pool may be defined in the West Sak No. 1 well, between the measured depths of 3742 feet to 4156 feet, which appears to contain a typical and representative stratigraphic section of the reservoir.

4. The working interest owners of the Kuparuk River Unit refer to the area that they believe contains exploitable West Sak sandstones as the Greater West Sak Area.

5. The Greater West Sak Area is generally coincident with, but larger than the Kuparuk River Unit.

6. The western and southern boundary of the Greater West Sak Area extends beyond the boundary of the Kuparuk River Unit.

7. The northern and eastern boundaries of the Greater West Sak Area generally conform to the boundary between the Prudhoe Bay, Milne Point and Kuparuk River Units.

8. Well data indicate that the oil-bearing West Sak interval extends into the western Prudhoe Bay Unit.

9. Strata equivalent to the West Sak interval are currently productive in the Milne Point Unit.

10. ARCO has been designated operator of all currently leased acreage within the Greater West Sak Area.

11. The West Sak Oil Pool has been delineated in the Greater West Sak Area through open hole logs from numerous Kuparuk Oil Pool development wells, 27 cores, several well tests including a production pilot consisting of a 9 spot, 40 acre development on 5 acre spacing and extensive seismic surveys.

12. The West Sak interval gross thickness ranges from 700 feet in the southwest portion of the Kuparuk River Unit to 350 feet in the northeast, its average thickness is 450 feet.

13. In the Greater West Sak Area, the West Sak interval is divisible into upper and lower members.

14. The upper West Sak consists of two widespread sands, the “D” sand and the “B” sand. The two sands are separated by an intervening “C” mudstone.

15. The “D” sand ranges from 20 to 40 feet thick and consists of very fine grained, moderately sorted sandstone, which has been extensively bioturbated.

16. The “B” sand ranges from 15 to 20 feet thick and consists of very fine grained, moderately sorted sandstone, which contains sedimentary structures indicative of shallow marine deposition.

17. The Upper West Sak “B” sand is currently perceived by ARCO as the only potentially exploitable sand unit in the western extreme of the Greater West Sak Area.

18. The lower West Sak consists of a series of 6 inch to 4 feet, very fine-grained, moderately sorted sands interbedded with mudstones, averaging 70 feet of net sand.

19. Individual sands within the lower West Sak are discontinuous, however, four stratigraphic subdivisions (A1-A4) have been correlated across the area of the Kuparuk River Unit.

20. The West Sak interval is the stratigraphic equivalent of the Schrader Bluff Formation in the Umiat area. The “D” and “B” sands of the West Sak interval correlate with the “OA” and “OB” sands in the Schrader Bluff Oil Pool in the adjacent to the north Milne Point Unit.

21. Three types of petrofacies are recognized in the West Sak interval based on porosity and permeability distributions, Rock Type 1 and 2, which constitute potential pay intervals, and Rock Type 3 consisting of non-pay mudstones.

22. Rock Types 1 and 2 are litharenites and lithic wackes, respectively, and are evenly distributed throughout the West Sak net sand intervals.

23. Rock Type 1 is dominated by macro porosity; the average grain size is very fine sand. Characteristics of this rock type are 25 to 35% porosity, unstressed air permeability between 200 to over 1000 millidarcies, oil saturation from core plugs (not normalized to 100% fluids) from 40 to 75%, water saturation from 15 to 30% and grain density averaging 2.65 g/cm3.

24. Rock Type 2 contains both micro and macro porosity; the average grain size is coarse silt. Characteristics of this rock type are 20 to 30% porosity, unstressed air permeability from 15 to 200 millidarcies, oil saturation from core plugs (not normalized to 100% fluids) from 20 to 60%, water saturation from 25 to 75% and grain density averaging 2.71 g/cm3.

25. The regional structure of the West Sak interval is a north-northwest striking monocline, with northeast dip of 1 to 2 degrees. The top of the West Sak ranges from 1300 feet subsea in the southwest Kuparuk River Unit to 4200 feet subsea in the eastern Kuparuk River Unit.

26. The West Sak is densely cut by north-south and east-west trending post depositional normal faults with throws averaging 50 feet, and ranging to 200 feet.

27. Faults with throws as small as 50 feet may segment the reservoir into blocks with discrete oil/water contacts.

28. Seven regional hydraulic blocks with oil/water contacts, ranging from 2150 feet subsea in the western Kuparuk River Unit to 4050 feet subsea in the northern Kuparuk River Unit, have been identified to date.

29. The trapping mechanism of the West Sak Oil Pool includes a combination of structural, stratigraphic and thermal elements. The thermal elements are related to proximity of permafrost to high viscosity oil.

30. The West Sak Oil Pool is estimated to contain 15 to 20 billion barrels of original oil in place within the Kuparuk River Unit portion of the Greater West Sak Area.

31. West Sak oil is characterized by biodegradation with API gravities that vary from 22 degrees in the deeper, eastern part of the Kuparuk River Unit to 10 degrees in the shallower western side of the Kuparuk River Unit. The API gravity generally increases 1 to 2 degrees with depth through the West Sak interval.

32. Temperature of the reservoir, which is a function of depth, controls the distribution of lower viscosity crude.

33. Initial well spacing is expected to be 40 acres. The operator has requested spacing down to 10 acres to accommodate reservoir stratigraphy, structure, fluid flow characteristics and flexibility for well placement to increase recovery.

34. The reservoir fluids are undersaturated with a GOR of about 200 standard cubic feet per barrel. Development will proceed with a pressure maintenance waterflood starting with initial production.

35. The waterflood will target voidage balance and attempt to maintain reservoir pressure at or near initial pressure.

36. Optimum waterflood pattern has not been determined. Initial waterflood will probably consist of a 5 spot pattern and may be altered as development progresses.

37. Thermal and miscible EOR processes will be considered as more development data are gathered and reservoir characteristics evaluated.

38. Drill sites 1-C and 1-D will be developed initially with 50 wells drilled and completed between 4th quarter 1997 and year-end 1998.

39. The operator proposes to install conductor pipe, then drill with a diverter to total depth. A single string of casing will then be run and will act as a combination surface and production string; the casing will be cemented to surface.

40. Drilling waste will be disposed by annular injection. Wells used for annular disposal will have an extra casing string to accommodate disposal. These wells will be cased with conductor casing, surface casing set below the permafrost and cemented to surface, and production casing set through the West Sak formation. Disposal will occur below the surface casing shoe in formations above the West Sak.

41. Other options being considered for drilling waste disposal are offsite disposal through permitted well annuli in the Kuparuk River Unit, an existing Class II disposal well or a dedicated West Sak Class II disposal well.

42. The operator plans to complete injection wells with surface safety valves consisting of double check valves. Production wells will have an electric solenoid actuated surface safety valve.

43. The operator proposes to commingle West Sak pool production with Kuparuk River pool production at the well pad. Separate test facilities will be installed to test West Sak wells.

44. The operator proposes to use a multiphase meter for well testing. The metering system will measure fluid flow only when wells are being tested. Monthly well allocation will be based only on the data derived from the well test(s) done each month.

45. The operator proposes to test wells once a month. Well test capacity will be adequate to test wells at least two times per month. The standard for commingled pools such as Pt. McIntyre, Lisburne, Niakuk, West Beach, North Prudhoe, Milne Pt. Schrader Bluff, Milne Pt. Kuparuk, Endicott and Sag Delta North has been to require a minimum of two well tests per month.

46. Experience with well test-based allocation in commingled pools indicates two well tests per month are required to accurately allocate production among pools.

47. ARCO anticipates that because the expected production characteristics and the accuracy of the proposed West Sak metering system, an allocation factor of 1.0 is justifiable for West Sak Oil Pool production commingled at the surface with Kuparuk River Oil Pool production.

48. Evaluation of appropriate allocation factors for West Sak Oil Pool production will be conducted by representatives of the AOGCC, the Alaska Department of Revenue and the Alaska Department of Natural Resources in cooperation with the operator.

49. Reservoir pressure will be measured regularly in injection wells. Submersible pumps in production wells will have the capability of measuring well pumping pressure. Surveillance will center on injection wells to estimate reservoir pressure with time. Pressure datum will be 3500 feet subsea for the West Sak pool.

50. The owners and operator of the West Sak pool have derived procedures to accommodate production anomalies and curtailment.

CONCLUSIONS:

1. Pool rules for the initial development of the West Sak oil Pool are appropriate at this time.

2. Initial development of the pool will be conducted on leases that are participating in the Kuparuk River Unit.

3. ARCO, the operator of the Kuparuk River Unit, and designated operator of the leased portion of the Greater West Sak Area, can properly undertake concurrent operations in both the Kuparuk River and West Sak Oil Pools.

4. The southern and western productive limits of the West Sak interval within the Greater West Sak Area have not been delineated.

5. Stratigraphic equivalents of the West Sak interval are currently under development in the adjacent Milne Point Unit.

6. Economically exploitable stratigraphic equivalents of the West Sak interval may extend to the east into the adjacent Prudhoe Bay Unit.

7. Well spacing limits down to 10 acres will allow the operator to plan wells according to geologic, stratigraphic and structural constraints.

8. Early implementation of a waterflood to support reservoir pressure will preserve reservoir energy and enhance potential ultimate recovery from the pool.

9. Annular disposal of drilling wastes is an appropriate option for West Sak Oil Pool development operations if conducted according to regulations contained in 20 AAC 25.080.

10. Reservoir pressure will be measured in injection wells using standard industry practices on a regular basis to manage production and monitor reservoir performance.

11. Exception from the gas-oil-ratio limitations of 20 AAC 25.240 is appropriate provided a pressure maintenance project starts within six months of the start of regular production.

12. Commingling West Sak and Kuparuk production streams on the surface is appropriate provided that there is adequate individual well testing to assure production allocation quality.

13. Two well tests per month has been a minimum standard for commingled pools with the advent of commingling pools in surface facilities prior to custody transfer and severance from leases.

14. An allocation factor of 1.0 for the West Sak pool is acceptable during the first year of production to evaluate multiphase well test equipment and allocation quality.

NOW, THEREFORE, IT IS ORDERED THAT the rules hereinafter set forth, in addition to statewide requirements under 20 AAC 25 apply to the following affected area referred to in this order.

Umiat Meridian

T8N R7E Sections 1-18
T9N R11E Sections 5-8, 17-20, 29-32
T9N R10E All
T9N R9E All
T9N R8E All
T9N R7E All
T10N R11E Sections 3-10, 15-22, 29-32
T10N R10E All
T10N R9E All
T10N R8E All
T10N R7E All
T11N R11E Sections 5-8, 16-22, 27-34
T11N R10E All
T11N R9E All
T11N R8E All
T11N R7E All
T12N R10E Sections 3-10, 14-23, 25-36
T12N R9E All
T12N R8E All
T12N R7E All
T13N R9E SW/4 Section 2, W/2&SE/4 Section 11, Sections 3-10, 15-22, 25-36
T13N R8E Sections 1-3, 10-12, 13-15, 19-36
T14N R9E Sections 19, 30, 31
T14N R8E Sections 24, 25, 36

Rule 1 Field and Pool Name

The field is the Kuparuk River Field. Hydrocarbons underlying the affected area and within the herein defined interval of the Schrader Bluff Formation constitute a single oil and gas reservoir called the West Sak Oil Pool.

Rule 2 Pool Definition

The West Sak Oil Pool is defined as the accumulation of hydrocarbons common to and correlating with the interval between the measured depths of 3742 feet and 4156 feet in the West Sak No. 1 well.

Rule 3 Spacing Units

Nominal spacing units within the pool will be 10 acres. The pool shall not be opened in any well closer than 300 feet to an external boundary where ownership changes.

Rule 4 Casing and Cementing Practices

(a) Conductor casing will be set at least 75’ below ground level and cemented to surface.

(b) Where required for annular disposal, surface casing will be set at least 500’ below the permafrost and be cemented to surface.

(c) Combination surface-production casing will be set where applicable through the producing or injection intervals and be cemented to surface.

Rule 5 Injection Well Completion

Injection wells may be completed with tapered casing provided a sealbore, packer, or other isolation device is positioned not over 200 feet above the top of the producing or perforated interval.

Rule 6 Automatic Shut-in Equipment

(a) All wells capable of unassisted flow of hydrocarbons will be equipped with a fail-safe automatic surface safety valve.

(b) Injection wells will be equipped with a double check valve arrangement.

(c) Surface safety valves will be tested at six-month intervals.

Rule 7 Common Production Facilities and Surface Commingling

(a) Production from the West Sak Oil Pool may be commingled with production from the Kuparuk River Oil Pool in surface facilities prior to custody transfer.

(b) The allocation factor for the West Sak pool will be 1.00 for the first year of production to evaluate the allocation method, testing frequency and quality.

(c) Each producing West Sak well will be tested a minimum of two times per month during the first year of regular production.

(d) The Commission may require more frequent or longer tests if the allocation quality deteriorates.

(e) The operator shall submit a monthly file(s) containing daily allocation data and daily test data for agency surveillance and evaluation.

(f) The operator shall provide the Commission with a well test and allocation review report after 6 months and after one year of commingled production. Subsequent report frequency and necessity will be determined after the first year of regular production.

(g) After one year of regular production, an evaluation of test frequency and allocation quality will be done to support extension of the 1.00 allocation factor or consideration of alternatives.

Rule 8 Reservoir Pressure Monitoring

(a) Prior to regular production or injection an initial pressure survey shall be taken in each well except those equipped with a subsurface pump.

(b) A minimum of one bottom-hole pressure survey per producing or injecting governmental section shall be measured annually. Bottom-hole surveys in paragraph (a) may fulfill the minimum requirement. (c) The reservoir pressure datum will be 3500 feet subsea.

(d) Pressure surveys may consist of stabilized static pressure measurements at bottom-hole or extrapolated from surface, pressure fall-off, pressure buildup, multi-rate tests, drill stem tests, and open-hole formation tests.

(e) Data and results from pressure surveys shall be reported quarterly on Form 10-412, Reservoir Pressure Report. All data necessary for analysis of each survey need not be submitted with the Form 10-412 but must be available to the Commission upon request.

(f) Results and data from special reservoir pressure monitoring tests or surveys shall also be submitted in accordance with part (e) of this rule.

Rule 9 Gas-Oil Ratio Exemption

Wells producing from the West Sak Pool are exempt from the gas-oil-ration limits of 20 AAC 25.240(b) so long as the provisions of 20 AAC 25.240(c) apply.

Rule 10 Pressure Maintenance Project

A pressure maintenance waterflood must be initiated within six months after the start of regular production from the West Sak Pool.

Rule 11 Reservoir Surveillance Report

A surveillance report will be required after one year of regular production and annually thereafter. The report shall include but is not limited to the following:

(a) Progress of enhanced recovery project(s) implementation and reservoir management summary including engineering and geotechnical parameters.

(b) Voidage balance by month of produced fluids and injected fluids.

(c) Analysis of reservoir pressure surveys within the pool.

(d) Results and where appropriate, analysis of production log surveys, tracer surveys and observation well surveys.

(e) Results of well allocation and test evaluation for Rule 7(f) and any other special monitoring.

(f) Future development plans

Rule 12 Production Anomalies

In the event of oil production capacity proration at or from the Kuparuk facilities, all commingled reservoirs produced through the Kuparuk facilities will be prorated by an equivalent percentage of oil production, unless this will result in surface or subsurface equipment damage.

Rule 13 Administrative Action

Upon proper application, the Commission may administratively waive the requirements of any rule stated above or administratively amend this order as long as the change does not promote waste, jeopardize correlative rights, and is based on sound engineering principles.

DONE at Anchorage, Alaska and dated October 16, 1997.

David W. Johnston, Chairman

Cammy Oechsli, Commissioner

Robert N. Christenson, PE, Commissioner

Conservation Order Index