STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

333 West Seventh Avenue, Suite 100

Anchorage Alaska 99501

Re:

THE APPLICATION OF CONO-COPHILLIPS Alaska, Inc. for an or-der to change Rule 3, Conservation Order 406A, which affects well spac-ing within the West Sak Oil Pool, Kuparuk River Unit, North Slope, Alaska

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Conservation Order No. 406B

Kuparuk River Field
Kuparuk River Unit
West Sak Oil Pool

November 2, 2004

IT APPEARING THAT:

1. By application dated August 24 2004, and received by the Alaska Oil and Gas Con-servation Commission ("Commission") on August 25 2004, ConocoPhillips Alaska, Inc. (“CPAI”) in its capacity as Unit Operator of the Kuparuk River Unit (“KRU”) requested an order from the Commission to expand the affected area established in Conservation Order 406A that governs the development and operation of the West Sak Oil Pool;

2. Notice of a public hearing was published in the Anchorage Daily News on August 30, 2004;

3. The Commission received no comments or requests for public hearing; and

4. Because CPAI provided sufficient information on which to make an informed deci-sion, the Commission determined that it could issue an order without a hearing.

FINDINGS:

1. Development of the West Sak Oil Pool

a. Operator: CPAI is the Operator of the West Sak Oil Pool (“WSOP”) within the KRU.

b. Affected Area: The affected area for the WSOP pool rules is general coincident with, but larger than, the KRU. The western and southern boundary of the affected area extends beyond the boundary of the KRU. The northern and eastern boundaries of the affected area generally conform to the boundary between the Prudhoe Bay Unit, Milne Point Unit and KRU.

c. Unit Owners and Landowners: Working interest owners of the KRU are CPAI (55.29%), BP Exploration (Alaska) Inc. (39.28%), Union Oil Company of Cali-fornia (4.95%), ExxonMobil Alaska Production Inc. (0.36%), and Chevron USA Inc. (0.11%). The State of Alaska is the landowner.

d. Pool Identification: The WSOP is defined in Conservation Order No. 406A (“CO 406A”) as the accumulation of hydrocarbons common to, and correlating with, the interval between the measured depths (“MD”) of 3,742 feet and 4,156 feet in the West Sak No. 1 well. The WSOP is contained within the West Sak, and the currently known productive limits of the WSOP lie entirely within the expanded KRU.

2. Spacing Requirements for the WSOP

a. Spacing within the WSOP is currently governed by Rule 3 of CO 406A, which states: “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.”

b. Rule 3 of CO 406A states that the pool shall not be opened in any well closer than 300 feet to an external boundary where ownership changes. This rule deviates from the standard statewide set back requirement presented in 20 AAC 25.055(a)(1). This regulation specifies that a well bore may be open to test or regular production within 500 feet of a property line only if the owner is the same and the landowner is the same on both sides of the line. In the current application, CPAI did not provide testimony or evidence to support deviation from the 500-foot set back specified in 20 AAC 25.055(a)(1). A review of the record of CO 406 did not reveal that any evidence or testimony had been originally presented to support the deviation from statewide spacing. In review of existing wells, it ap-pears that all are set back more than 500 feet from the external boundaries of the West Sak Oil Pool and the Kuparuk River Unit.

c. The original WSOP spacing requirements specified in CO 406 were developed in the 1997:

1. during the earlier stages of development of the WSOP, and

2. before the application of horizontal laterals, multi-laterals and coiled-tubing drilling techniques to these reservoirs, which allow more effective recovery of reserves through precise placement of extended production and injection well bores and well bore segments within the individual blocks of a faulted reservoir.

d. Maximizing recovery of reserves from the WSOP will require additional wells, sidetracked wells, and multilateral well segments whose placement is dictated by reservoir faulting and stratigraphy rather than a prescribed land grid.

3. Sustained Casing Pressure Rules

CO 494, dated September 4, 2003, amended CO 406 by adding new rules regarding sus-tained casing pressures in development wells within the WSOP.

CONCLUSIONS:

1. Less restrictive spacing requirements will help to maximize recovery from the faulted, compartmentalized WSOP as development continues to mature, and reduce the administrative burden for the WSOP Operators and the Commission.

2. To better protect the correlative rights of the owners and landowners of offset acre-age, the set-back requirement for the West Sak Oil Pool must be changed to conform with 20 AAC 25.055(a)(1).

3. Revised spacing requirements for wells and well bore segments located more than 500 feet from external property lines where ownership or landownership changes will promote more efficient recovery of oil reserves and will not result in waste or jeop-ardize the correlative rights of adjoining or nearby owners.

4. It is appropriate to include the sustained casing pressure rules established by CO 494 within this order.

NOW, THEREFORE, IT IS ORDERED:

This Conservation Order supersedes CO 406A dated August 27, 2003. The findings, con-clusions and administrative record for CO 406A and CO 494 are adopted by reference and incorporated in this decision, except where inconsistent with this Conservation Or-der. The following rules, in addition to statewide requirements under 20 AAC 25, to the extent not superseded by these rules, apply to the WSOP within the following affected area:

Umiat Meridian
TownshipRangeSections
T8NR7ESections 1-18
T9NR11E Sections 5-8, 17-20, 29-32
T9NR10EAll
T9NR9EAll
T9NR8EAll
T9NR7EAll
T10NR11ESections 3-10, 15-22, 29-32
T10NR10EAll
T10NR9E All
T10NR8E All
T10NR7E All
T11NR11ESections 5-8, 16-22, 27-34
T11NR10EAll
T11NR9E All
T11NR8E All
T11NR7E All
T12NR10ESections 3-10, 14-23, 25-36
T12NR9E All
T12NR8EAll
T12NR7EAll
T13NR9E SW/4 Section 2, W/2& SE/4 Section 11, Sections 3-10, 15-22, 25-36
T13NR8E Sections 1-3, 10-12, 13-15, 19-36
T14NR9E Sections 19, 30, 31
T14NR8E Sections 24, 25, 36

Rule 1 Field and Pool Name (Restated from CO 406A)

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 (Restated from CO 406A)

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 Well Spacing (This Order)

There shall be no restrictions as to well spacing except that no pay shall be opened in a well closer than 500 feet to an external property line where ownership or landownership changes.

Rule 4 Casing and Cementing Practices (Restated from CO 406A)

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 (Restated from CO 406A)

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 (Restated from CO 406A)

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 (Restated from CO 406A)

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 (Restated from CO 406A)

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 paragraph (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.

f. 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.

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

Rule 9 Gas-Oil Ratio Exemption (Restated from CO 406A)

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 (Restated from CO 406A)

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 (Restated from CO 406A)

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 (Restated from CO 406A)

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 Sustained Casing Pressure (Restated from CO 494)

a. The operator shall conduct and document a pressure test of tubulars and completion equipment in each development well at the time of installation or replacement that is sufficient to demonstrate that planned well operations will not result in failure of well integrity, uncontrolled release of fluid or pressure, or threat to human safety.

b. The operator shall monitor each development well daily to check for sustained pres-sure, except if prevented by extreme weather conditions, emergency situations, or similar unavoidable circumstances. Monitoring results shall be made available for AOGCC inspection.

c. The operator shall notify the AOGCC within three working days after the operator identifies a well as having (1) sustained inner annulus pressure that exceeds 2000 psig or (2) sustained outer annulus pressure that exceeds 1000 psig.

d. The AOGCC may require the operator to submit in an Application for Sundry Ap-provals (Form 10-403) a proposal for corrective action or increased surveillance for any development well having sustained pressure that exceeds a limit set out in para-graph c of this rule. The AOGCC may approve the operator’s proposal or may re-quire other corrective action or surveillance. The AOGCC may require that correc-tive action be verified by mechanical integrity testing or other AOGCC approved di-agnostic tests. The operator shall give AOGCC sufficient notice of the testing sched-ule to allow AOGCC to witness the tests.

e. If the operator identifies sustained pressure in the inner annulus of a development well that exceeds 45% of the burst pressure rating of the well’s production casing for inner annulus pressure, or sustained pressure in the outer annulus that exceeds 45% of the burst pressure rating of the well’s surface casing for outer annulus pressure, the operator shall notify the AOGCC within three working days and take corrective ac-tion. Unless well conditions require the operator to take emergency corrective action before AOGCC approval can be obtained, the operator shall submit in an Application for Sundry Approvals (Form 10-403) a proposal for corrective action. The AOGCC may approve the operator’s proposal or may require other corrective action. The AOGCC may also require that corrective action be verified by mechanical integrity testing or other AOGCC approved diagnostic tests. The operator shall give AOGCC sufficient notice of the testing schedule to allow AOGCC to witness the tests.

f. Except as otherwise approved by the AOGCC under paragraph (d) or (e) of these rules, before a shut-in well is placed in service, any annulus pressure must be relieved to a sufficient degree (1) that the inner annulus pressure at operating temperature will be below 2000 psig and (2) that the outer annulus pressure at operating temperature will be below 1000 psig. However, a well that is subject to paragraph (c), but not paragraph (e), of these rules may reach an annulus pressure at operating temperature that is described in the operator's notification to the AOGCC under paragraph (c), unless the AOGCC prescribes a different limit.

g. For purposes of these rules,

“inner annulus” means the space in a well between tubing and production casing;

“outer annulus” means the space in a well between production casing and surface casing;

“sustained pressure” means pressure that (1) is measurable at the casing head of an annulus, (2) is not caused solely by temperature fluctuations, and (3) is not pressure that has been applied intentionally.

Rule 14 Administrative Actions (Modified This Order)

Unless notice and public hearing is otherwise required, the Commission may administra-tively waive or amend any rule stated above as long as the change does not promote waste or jeopardize correlative rights, is based on sound engineering and geoscience principles, and will not result in fluid movement outside of the confining zone.

DONE at Anchorage, Alaska and dated November 2, 2004.

John K. Norman, Chair
Alaska Oil and Gas Conservation Commission

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


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