STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

3001 Porcupine Drive

Anchorage, Alaska 99501-3192

Re: THE APPLICATION OF GRI, INC. ) Conservation Order No. 412
for an order allowing air drilling )
below the conductor in wells in the ) Houston Gas Field
Houston Gas Field. ) Houston Coalbed Gas Pool
February 24,1998

IT APPEARING THAT:

1. GRI, Inc. (GRI) submitted an application dated December 31, 1997 requesting a variance to 20 AAC 25.033 to enable wells in the Houston Gas Field to be drilled using air as the drilling fluid.

2. The Commission published notice of public hearing in the Anchorage Daily News on January 8, 1998 pursuant to 20 AAC 25.540.

3. A public hearing was held on February 10, 1998 at the Commission office at 3001 Porcupine Drive, Anchorage, Alaska.

FINDINGS:

1. Conservation Order No. 358 defines the Houston Gas Field, Houston Coalbed Gas Pool.

2. GRI assumed operatorship of the Houston Gas Field from Lapp Resources, Inc. on December 1, 1997.

3. GRI owns all of the leases that comprise the Houston Gas Field.

4. GRI proposes to drill coalbed gas wells in the Houston Gas Field as straight holes using air as the drilling medium below the conductor casing set at 500 feet.

5. Several nearby oil and gas wells found small amounts of low volume, low-pressure gas with no indication of overpressure within the interval GRI intends to develop.

6. GRI has subcontracted with Wayne E. Westberg, M-W Drilling, Inc., to drill wells to the Houston Coalbed Gas Pool. Mr. Westberg has considerable experience drilling with air to depths up to 500 feet in Alaska for water and to 4700 feet in the Tuscaloosa trend in Alabama for coalbed methane.

7. GRI will employ a foam and mist drilling system, in addition to air. Drilling with foam or mist is more effective than drilling with air because it increases the ability of the fluid to remove cuttings from the well bore, improves clay stability and limits the risk of downhole fires. The foam is biodegradable.

9. Drilling with air has been done for at least 50 years and is common in the lower 48 where over 100 drilling contractors use air for drilling.

10. The merits of drilling with air include higher penetration rates and lower cost because there is no active mud system, no mud to dispose of, and less formation damage.

11. The disadvantages include caving tendencies in some holes, the possibility of water influx, and minor risk of downhole fire.

12. GRI will use compressed air rates exceeding one million cubic feet per day to lift cuttings from the well bore. This high flow rate, coupled with mist or foam, tends to stabilize the wellbore, can make beneficial use of formation water, and tends to reduce the risk of downhole fire.

13. Blowout prevention equipment will be flanged to seven inch casing cemented at 500 feet, and will include a set of pipe rams, an annular preventer or rotating head, a diverter with seven inch vent line, and a stripper or rubber packer.

14. GRI will have a mud system, with a tank containing 100 barrels of 10 ppg bentonite gel mud, appropriate heaters and pumps, on standby should it be needed for well control.

15. GRI will employ two gas sensors, one located near the BOPs and other near the rig operating area to help protect the crew.

CONCLUSIONS:

1. Drilling with air is an established method that is commonly used in other parts of the country.

2. It is highly unlikely that there is any large volume, high-pressure gas sands in the interval proposed to be drilled for coalbed gas development in the Houston Gas Field.

3. The proposed well control system, including the standby mud system and related safety equipment, appear adequate for drilling the interval to be developed.

4. Drilling with air, and using foam or mist, should improve productivity because formation damage is reduced.

5. Drilling with air will allow faster drilling, with lower cost and fewer environmental problems associated with disposal of drilling muds.

6. Drilling with air in the Houston Gas Field to a depth of 2200 feet is appropriate and should not cause waste.

NOW, THEREFORE. IT IS ORDERED:

1. Drilling for coalbed methane in the Houston Gas Field using air, with mist and foam, is hereby approved to depth of 2200 feet.

2. Based on engineering and geologic data, the Commission may administratively modify the depth and areal limits approved for drilling with air.

DONE at Anchorage, Alaska and dated February 24, 1998.

David W. Johnston, Chairman

Robert N. Christenson, P.E. Commissioner

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