STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

3001 Porcupine Drive

Anchorage Alaska 99501-3192

Re: THE APPLICATIONS OF OCEAN ENERGY RESOURCES,       ) Conservation Order No. 448 
INC. for an exception to spacing requirements         )
of 20 AAC 25.055(a)(2)and the notice provisions       ) Ocean Energy Resources, Inc.
of 20 AAC 25.055(b) to allow re-entry and testing     ) BLT #1 Exploratory Gas Well
of the BLT #1 exploratory gas well.                   )
                                                        August 11, 1999
IT APPEARING THAT:

1. Union Oil Company of California ("Unocal") submitted applications dated July 13, 1999, requesting a spacing exception to 20 AAC 25.055(a)(2) and a variance from the public notice provisions of 20 AAC 25.055(b) to allow re-entry and testing of the BLT #1 exploratory gas well.

2. Ocean Energy Resource, Inc. ("Ocean Energy") assumed operatorship of the Pioneer Unit, including the BLT #1 well, from Unocal prior to expiration of the protest period.

3. The Commission published notice of an opportunity for hearing in the Anchorage Daily News and the Frontiersman on July 20, 1999, pursuant to 20 AAC 25.540.

4. The Commission did not receive any protest to the application.

FINDINGS:

1. Ocean Energy proposes to reenter and test the BLT #1, which is located 1334 feet from the west line, 795 feet from the north line in Section 22, T17N, R3W, Seward Meridian.

2. Ocean Energy and Unocal are the owners of State of Alaska lease ADL 374124, which includes Section 22, T17N, R3W, S.M.

3. The BLT #1 well was previously drilled by ARCO Alaska, Inc. in 1992 under the authority of Permit to Drill 91-130 and Conservation Order 280. CO 280 granted the original spacing exception for the well on November 21, 1991.

4. Ocean Energy plans to evaluate the well for gas, but does not plan to commercially produce the well at this time.

5. The public notice provisions of 20 AAC 25.055(b) require notification by registered mail of all owners and operators within all sections directly and diagonally offsetting the section where the gas well is located.

6. The ownership of the nine square miles surrounding the BLT #1 well is highly complex because of the many residential lots in the area. Varied subsurface and surface ownership exists, which would require mailing hundreds of notices to the mineral and surface owners in the area.

7. As part of the Alaska Coastal Zone Management review process, the Department of Governmental Coordination ("DGC") held two public meeting in the Houston/Wasilla area during May and June to inform the public of the proposed Pioneer Unit development, including operations in the BLT #1 well. Ocean Energy, Unocal and other state agencies participated in these meetings.

8. The DGC advertised the public meetings and issued public notification of the project in various forms of media publications including postings at local post offices.

9. Unocal sent notice to all owners within a 1/2 mile radius of the BLT #1 well prior to the public meetings.

CONCLUSIONS:

1. An exception to 20 AAC 25.055(a)(2) is necessary to allow re-entry of the BLT #1 well.

2. Production testing of the BLT #1 well will not violate the correlative rights of adjacent owners.

3. A variance from the public notice provisions of 20 AAC 25.055(b) for re-entry of the BLT #1 is warranted in the context of the complex ownership and the extensive notification and public meetings previously conducted.

4. If commercial production from the BLT #1 well is ultimately proposed, the Commission will be required to take further action to offset any advantage that Ocean Energy may have over other producers from the drilling and re-entry of the BLT #1 well at its exception location. Such action may include, but is not limited to, insuring that drainage from adjacent tracts is prevented or minimized, or insuring that Ocean Energy is allowed to produce no more than a just and equitable share of oil and gas from any common pool.

NOW, THEREFORE, IT IS ORDERED:

Ocean Energy's applications for an exception to the spacing requirements of 20 AAC 25.055(a)(2) and the notice provisions of 20 AAC 25.055(b) for the purpose of reentering and testing the BLT #1 well is approved under the following conditions.

1. The BLT #1 exploratory gas well must be tested to determine the well's potential to produce commercial quantities of hydrocarbons.

2. The BLT #1 well may not be commercially produced until the commission takes additional action, upon petition and after notice and hearing, to (a) offset any advantage Ocean Energy may have over other owners by reason of re-entry of the BLT #1 well at the exception location, and (b) allow affected owners to produce their just and equitable share of hydrocarbons.

DONE at Anchorage, Alaska and dated August 11, 1999.

Robert N. Christenson, P. E., Chairman
Alaska Oil and Gas Conservation Commission

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

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