STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

333 West Seventh Avenue, Suite 100

Anchorage Alaska 99501

Re:

THE APPLICATION OF Phillips Alaska, Inc., the predecessor company of ConocoPhillips Alaska, Inc. (“CPAI”) for changes to Rules 6, 7, 8, and 11, Conser-vation Order 406, which affect the West Sak Oil Pool, Kuparuk River Unit, North Slope, Alaska.

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Conservation Order No. 406A

Kuparuk River Unit
West Sak Oil Pool

August 27, 2003

IT APPEARING THAT:

1) ConocoPhillips Alaska, Inc. (“CPAI”), by letter dated August 12, 2002, requested changes to Rule 7 Conservation Order 406 pertaining to Common Production Facilities and Surface Commingling allocation methods affecting the West Sak Oil Pool producing within the Kuparuk River Unit (“KRU”).

2) The Commission published notice of opportunity for public hearing in the Anchorage Daily News on August 16, 2002, pursuant to 20 AAC 25.540. A tentative hearing date was set for September 18, 2002.

3) No requests for public hearing or protests to the application were received. The hearing date was vacated on September 8, 2002.

4) During discussions with AOGCC staff and in correspondence dated September 5, 2002, September 25, 2002, October 1, 2002, February 6, 2003, April 14, 2003, and May 22, 2003, CPAI requested administrative changes to Rules 6, 8, and 11 of Conservation Order (“CO”) 406 be made coincident with the production allocation issue noticed under item 1.

5) The Commission delayed action on the Production Allocation Rule application until CPAI finalized their request and subsequent personnel changes were complete.

FINDINGS:

1) The Operator of the KRU has nominally changed through corporate acquisitions and corporate mergers. ARCO Alaska, Inc., the original Operator, was acquired by Phillips Petroleum, which has since merged with Conoco, Inc. The Operator is currently doing business in Alaska as ConocoPhillips Alaska, Inc.

2) Satellite pools have been discovered and developed utilizing the infrastructure built to develop the Kuparuk River Oil Pool (“KROP”) within the KRU.

3) Production allocation procedures for satellite pools have evolved since initially established for the West Sak Oil Pool in CO 406, dated October 16, 1997.

4) Satellite pool allocation procedures were proposed to eliminate duplicate facilities needed to produce separate reservoirs into unitized surface facilities in the KRU.

5) Satellite pool allocation requires a minimum of two well tests per month, point-to-point interpolation between tests, and uses the following month initial test to allocate month-end production to eliminate wedge effects.

6) Well test-based allocation is a method for dividing production among owners, calculating royalty, managing reservoirs and calculating severance tax prior to final processing at Central Processing Facilities (“CPF”) that were initially built for the KROP. The allocation procedure compares the summation of theoretical production from all wells into one facility (including KROP and satellite pools) to its Lease Automatic Custody Transfer (“LACT”) meter total. The ratio of the two determines an allocation factor (“AF”) that is applied to the theoretical well production so that the volumes are forced to agree.

7) The initial procedure applied at KRU fixed the satellite pool AF to 1.0 (called the "fixed-float" method). The satellite AF was fixed while the KROP AF floated according to the ratio of the theoretical volume to the total LACT volume less the satellites volume. The floating AF was used to correct KROP volumes.

8) In November 2001, the Operator agreed to test a methodology, advocated by the DOR, that allowed the satellite pools AF to float up to a limit of 1.02. The method involved the same procedures except the AF was based on the ratio of total facility volume compared to total facility theoretical volume. If AF exceeded 1.02, the satellite AF is “capped” and the KROP AF is allowed to float. The method is called the “capped float-float” method.

9) Department of Natural Resources Division of Oil & Gas (“DOG”) specified the capped float-float methodology for the Greater Kuparuk Area for a twelve-month trial in their August 29, 2001 “Decision and Findings for the Seventh Expansion of the Kuparuk River Unit and Formation of the Meltwater Participating Area.”

10) CPAI initiated the capped float-float method in January 2002 for all satellite pools including the West Sak Oil Pool in the KRU. Representatives of the AOGCC, DOG and DOR reviewed the first six months of allocation data under the new method on July 30, 2002. All parties agreed that the transition to capped float-float was smooth and without notable affect on any of the separate pools.

11) The agencies and CPAI agreed the capped float-float allocation technique would be appropriate for production allocation at the KRU satellite pools on a permanent basis.

12) CPAI requested administrative changes to specific rules in CO 406 to standardize the rules and timing of required reports for annual surveillance, annual pressure measurements and automatic shut-in equipment for the West Sak Oil Pool within the KRU.

13) The requested changes will make compliance with Conservation Orders and field operation of the pools more consistent and efficient, as CPAI will be administering similar rules with consistent requirements and deadlines for all pools within the KRU operating area.

14) Annual surveillance reporting requirements are documented in CO 406, Rule 11 for the West Sak Oil Pool.

15) CPAI requested the annual surveillance reporting requirements be changed such that the report for each pool for a calendar year is due by April 1 of the following year.

16) Automatic Shut-In Equipment rules are documented in CO 406, Rule 6 for the West Sak Oil Pool.

17) CPAI requested additional wording to distinguish between safety valve requirements for water and gas injectors, and requiring that gas and miscible gas injectors be equipped with a landing nipple for installation of a down hole flow control device.

18) Reservoir pressure monitoring rules are documented in CO 406, Rule 8 for the West Sak Oil Pool.

19) CPAI requested flexibility to determine the appropriate number of pressure surveys each year in the pools, and to provide a plan each year as part of the Annual Reservoir Surveillance Report.

CONCLUSIONS:

1) DOR, AOGCC and DOG, the State of Alaska agencies affected by the capped float-float production allocation procedure, have agreed that this method is appropriate for allocation of production amongst pools producing within the KRU.

2) Well test-based production allocation methods applied consistently to all pools producing to a common facility have been approved by the affected State agencies, DOR, DOG and AOGCC, based on technical review of data developed from January to July of 2002.

3) Commingling of West Sak Oil Pool fluids at the surface with produced fluids from the other KRU Pools is appropriate provided there are adequate well tests to assure accurate production allocation.

4) Wording changes to rules affecting automatic shut-in equipment will make planning completions and workovers consistent and less complicated.

5) Wording changes to rules affecting reservoir pressure monitoring will allow the Operator to plan surveillance to meet reservoir management requirements.

6) Wording and timing changes to rules affecting annual surveillance reports will enhance efficiency of the Operator regulatory responsibilities.

7) The changes to these rules will not cause waste, harm correlative rights or adversely impact ultimate recovery from the affected pool.

NOW, THEREFORE, IT IS ORDERED:

1) Conservation Order 406 is amended to provide changes to Rules 6, 7, 8, and 11.

2) Conservation Order 406A supersedes Conservation Order 406 dated October 16, 1997.

3) The findings, conclusions and administrative record for Conservation Order 406 are adopted by reference and incorporated in this decision.

4) The following rules, in addition to statewide requirements under 20 AAC 25 (to the extent not superseded by these rules), apply to the following affected area.

Umiat Meridian
Township Range Sections
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 R9EAll
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 feet below ground level and cemented to surface.
b) Where required for annular disposal, surface casing will be set at least 500 feet measured depth 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 seal bore, 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 producing wells will be equipped with a fail-safe automatic surface safety valve.
b) Water injection wells will be equipped with a double check valve arrangement or a single check valve plus a fail-safe automatic surface safety valve.
c) Gas or miscible gas (“MI”) injection wells will be equipped with a failsafe automatic surface safety valve and a single check valve.
d) Gas or MI injection wells must be equipped with a landing nipple at a depth which is suitable for the future installation of a down hole flow control device to control subsurface flow.
e) Surface safety valve systems must be maintained in good working order at all times and must be tested at six-month intervals or on a schedule prescribed by the Commission.

Rule 7 Common Production Facilities and Surface Commingling
a) Production from the West Sak Oil Pool may be commingled with production from the Tarn, Tabasco, Meltwater, and Kuparuk River oil pools in surface facilities prior to custody transfer.
b) The allocation factor for the West Sak Oil Pool produced fluids will be based on West Sak well tests. The allocation factor will be calculated on a monthly basis utilizing the Satellite Allocation Technique detailed on Exhibit 18 of the written testimony dated April 26, 2001 (“Testimony for Meltwater Oil Pool Rules – Revision 1”) and will be capped at 1.02000.
c) Each producing well must be tested a minimum of twice per month.
d) The Commission may require more frequent or longer tests if the allocation quality deteriorates.
e) The operator shall submit a monthly report and electronic 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 in conjunction with an annual reservoir surveillance report.

Rule 8 Reservoir Pressure Monitoring
a) A bottom-hole pressure survey shall be taken on each well prior to initial sustained production or injection.
b) The Operator shall obtain pressure surveys as needed to effectively manage hydrocarbon recovery processes subject to an annual plan outlined in e) of this rule.
c) The reservoir pressure datum will be 3500 feet subsea.
d) Pressure surveys may consist of stabilized static pressure measurements at bottomhole or extrapolated from surface under single-phase conditions, pressure fall-off, pressure buildup, multi-rate tests, drill stem tests, and open-hole formation tests.
e) Data from the surveys required in this rule shall be filed with the Commission by April 1 of the subsequent year in which the surveys are conducted. Along with the survey submittal, the operator will provide a proposed survey plan for the upcoming year. The proposed plan shall be deemed accepted if the operator has not received written correspondence from the Commission within 45 days. Reservoir Pressure Report, Form 10-412 shall be utilized for all surveys with attachments for complete additional data. Data submitted shall include, but are not limited to rate, pressure, depth, fluid gradient, temperature, and other well conditions necessary for complete analysis of each survey being conducted.
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-ratio 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
The Unit Operator shall submit an Annual Reservoir Surveillance Report by April 1 of each year documenting operations for the previous calendar year. The report shall include but is not limited to the following:
a) Reservoir management summary including a description of progress of enhanced recovery project implementation and results of reservoir simulation techniques;
b) Voidage balance by month of produced fluids and injected fluids on a standard and reservoir volume basis with yearly and cumulative volumes;
c) Summary and analysis of reservoir pressure surveys within the pool;
d) Results and, where appropriate, analysis of production and injection log surveys, tracer surveys, observation well surveys, and any other special monitoring;
e) Review of pool production allocation factors and issues over the prior year; and
f) Updated future development plans including an estimated development schedule, progress report and basis of timeline for the complete pool development;

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 and geoscience principles.

Rule 14 Statewide Requirements
Except where a rule stated above substitutes for a statewide requirement, statewide re-quirements under 20 AAC 25 apply in addition to the above rules.

DONE at Anchorage, Alaska and dated August 27, 2003.

Sarah Palin, Chair
Alaska Oil and Gas Conservation Commission

Daniel T. Seamount, Jr., Commissioner
Alaska Oil and Gas Conservation Commission

Randy Ruedrich, Commissioner
Alaska Oil and Gas Conservation Commission


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