Re:THE APPLICATION OF ARCO       )                 Conservation Order No. 432
    Alaska, Inc. to change Rules 8 and 9 of )                 Kuparuk River Field
    Conservation Order 173 regarding          )                 Kuparuk River Unit
    pressure and production profile surveys.  )                 Kuparuk River Oil Pool

                                                                                   July 22, 1998

IT APPEARING THAT:

1. By letter dated May 11, 1998, ARCO Alaska, Inc. ("AAI") requested changes to the requirements of Rules 8 and 9, Conservation Order 173. AAI requested Rule 8(b) be changed to eliminate a specified number of pressure survey, Rule 8(d) be changed to require pressure survey reports annually rather than quarterly, and Rule 9(c) be changed to require productivity survey reports annually rather than quarterly.
2. The Commission requested clarification of the application on May 21, 1998.
3. The Commission published notice of opportunity for public hearing in the Anchorage Daily News on May 23, 1998.
4. AAI clarified and corrected their original request with a letter dated May 28, 1998.
5. The Commission received no protest or request for public hearing.

1. Various conservation orders and administrative approvals have modified Conservation Order 173.
2. Rule 8 of Conservation Order 173 was repealed and reenacted by Conservation Order 230 on May 6, 1987.
3. Conservation Order 230 was amended by Conservation Order 276 on August 6, 1991.
4. Rule 9 of Conservation Order 173 was amended by Conservation Order 276 on August 6, 1991, although the requirements of Rule 9(c), Conservation Order 173, have not been modified since the rule was adopted on May 6, 1981.
5. Development activity in the Kuparuk River oil pool is mature and data requirements have changed since initial development started in 1981.
6. AAI is responsible for reservoir management, development planning and data gathering on behalf of the working interest owners of the Kuparuk River Unit.
7. Since 1978, AAI has conducted approximately1,865 pressure surveys in the Kuparuk River oil pool.
8. The number of productivity profile surveys will not change only the reporting frequency will be altered.

1. Data requirements are best determined by the technical needs of the owners, operators and regulatory bodies responsible for oil and gas development, appraisal and regulation.
2. A significant number of pressure surveys have been obtained in the Kuparuk River oil pool so that pressure response in the pool is better understood today than when Rule 8(b) was established.
3. Because of the maturity of the Kuparuk River oil pool and the large number of existing pressure surveys, Rule 8(b) can be changed to allow more operator discretion in selecting which wells need pressure surveys and where in the pool those data are required without compromising reservoir management.
4. A change to Rule 8(d) will affect only the reporting frequency of Kuparuk Pool pressure surveys from quarterly to annual reports; Commission oversight will not be compromised.
5. Rule 9(c) will change only the reporting frequency of Kuparuk Pool productivity profile surveys from quarterly to annually; Commission oversight will not be compromised.
6. Amending Rules 8(b), 8(d) and 9(c) to eliminate a specified number of pressure survey and to require pressure and productivity survey reports annually rather than quarterly will not cause waste, jeopardize correlative rights or harm ultimate recovery of hydrocarbon resources.
7. Consolidating the rules and amendments affecting CO 173 into a new order will eliminate confusion concerning which rules are in effect and lead to more efficient management of the reservoir.
8. A new order consolidating the requirements of Conservation Order 173 and its subsequent modifications will not cause waste, jeopardize correlative rights or harm ultimate recovery of hydrocarbon resources.

Rule 1. Name of Field (Ref. CO 173)

The name of the field shall be the Kuparuk River Field. (Source CO 173)

Rule 2.Definition of Pool (Ref. CO 173)

The name of the Pool in the Kuparuk River Field shall be the Kuparuk River oil pool and is defined as the accumulation of oil that is common to and correlates with the accumulation found in the Atlantic Richfield Company West Sak River State No. 1 well between the depths of 6,474 and 6,880 feet. (Source CO 173)

Rule 3.Well Spacing (Ref. CO 173, 182, & 198)

Not more than one well may be drilled on any governmental quarter section or governmental lot corresponding to it nor may any well be drilled on a governmental quarter section or governmental lot corresponding to it which contains less than 125 acres, nor may the Pool be opened in a well bore that is closer than 500 feet to any property line nor closer than 1,000 feet to the pool opened to the well bore in another well except that: (Source CO 173)

1. in the area described in Conservation Order No. 198B, except for those governmental quarter sections adjacent to the Kuparuk River Unit boundary, four wells may be drilled per governmental quarter section (Source CO 198), and
2. in Sections 5, 6, 7, 8, 15, 16, 21, and 22, T11N, R10E, U.M., an unrestricted number of wells may be drilled. (Source CO 182)

(a) Casing and cementing requirements are as specified in 20 AAC 25.030, CASING AND CEMENTING, except as modified below. (Source CO 173)

(b) For proper anchorage and to prevent an uncontrolled flow, a conductor casing shall be set at least 75 feet below the surface and sufficient cement shall be used to fill the annulus behind the pipe to the surface. (Source CO 173)

(c) For proper anchorage, to prevent an uncontrolled flow, and to protect the well from the effects of permafrost thaw-subsidence and freeze back, a string of surface casing shall be set at least 500 measured feet below the base of the permafrost section but not below 2700 feet true vertical depth. Sufficient cement shall be used to fill the annulus behind the casing to the surface. (Source CO 173)

1. Drill Pad 2Z Kuparuk River oil pool wells may be drilled to a maximum depth of 3250 feet true vertical depth before surface casing is set so long as drilling fluid densities are monitored and maintained at 10.0 pounds per gallon. (Source CO 190, modified by AA 190.01 - 190.15)
2. Drill Pad 2X and 2C Kuparuk River oil pool wells may be drilled to a maximum depth of 2975 feet true vertical depth before surface casing is set. (Source CO 190, modified by AA 190.01 - 190.15)
3. In the event that geologic conditions are not as anticipated, the Commission may change the maximum depth for setting surface casing by administrative action, provided a request, in writing, is timely submitted. (Source CO 190)

1. The only types and grades of casing, with threaded connections, that have been shown to meet the requirements in (d) above and have been approved for use as surface casing are the following:

(A) 13 3/8 inch, 72 pounds/foot, L-80, Buttress;

(B) 13-3/8 inch, 72 pounds/foot, N-80, Buttress;

(C) 10-3/4 inch, 45.5 pounds/foot, K-55, Buttress;

2. The Commission may approve other types and grades of surface casing upon a showing that the proposed casing and connection can meet the post-yield strain requirements in (d) above. This evidence shall consist of one of the following:

(A) full scale tensile and compressive tests;

(B) finite element model studies; or,

(C) other types of axial strain data acceptable to the Commission.

(f) The Commission may approve alternative completion methods (to 20 AAC 25.030(b)(4) and (5)) upon application and presentation of data that shows the alternatives are based on accepted engineering principles. Such alternative designs may include: (Source CO 173)

1. slotted liners, wire wrapped screen liners, or combinations thereof, landed inside of open hole and may be gravel packed;
2. open hole completions provided that the casing is set not more than 200 feet above the productive zone.

(a) Each well shall be equipped with a Commission approved fail-safe automatic surface safety valve system (SVS) capable of preventing uncontrolled flow by shutting off flow at the wellhead and shutting down any artificial lift system where an over pressure of equipment may occur. (Source CO 348)

(b) The safety valve system (SVS) shall not be deactivated except during repairs, while engaged in active well work, or if the pad is manned. If the SVS cannot be returned to service within 24 hours, the well must be shut in at the well head and at the manifold building. (Source CO 348)

1. Wells with a deactivated SVS shall be identified by a sign on the wellhead stating that the SVS has been deactivated and the date it was deactivated. (Source CO 348)
2. A list of wells with the SVS deactivated, the dates and reasons for deactivating, and the estimated re-activation dates must be maintained current and available for Commission inspection on request. (Source CO 348)

Rule 6. Safety Flares (Ref. CO 173)

Repealed by 20 AAC 25.235.

Rule 7. Gas-Oil Ratio Tests (Ref. CO 173 & 262)

Repealed by Conservation Order 262, dated October 23 1990.

Rule 8. Pressure Surveys (Ref. CO 173, 230, 276 & 432)

(a) A bottom-hole pressure survey shall be taken on each well prior to initial sustained production. (Source CO 230)

(b) The operator shall obtain pressure surveys as needed to effectively manage hydrocarbon recovery processes subject to an annual plan outlined in (d) of this rule. (Source CO 432)

(c) Bottom-hole pressures obtained by a static buildup pressure survey, a 24 hour shut-in instantaneous test, a multiple flow rate test or an injection fall-off test will be acceptable. Calculation of bottom-hole pressures from surface data will be permitted for water injection wells. (Source CO 230)

(d) 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. 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, time, depths, fluid gradient, temperature, and other well conditions necessary for complete analysis of each survey being conducted. The pool pressure datum plane shall be 6,200 feet subsea. (Source CO 230, 432)

(e) Results and data from any special reservoir pressure monitoring techniques, tests, or surveys shall also be submitted as prescribed in (d) of this rule. (Source CO 230)

(f) Upon application by the operator, the Commission in its discretion may administratively approve exceptions to this rule. (Source CO 230)

Rule 9. Productivity Profiles (Ref. CO 173, 276 & 432)

During the first year of production, a production survey shall be run in each well that has multiple sand intervals open to the well bore. (Source CO 173)

(a) Subsequent surveys shall be run in wells that exhibit uncharacteristic changes in performance. Subsequent surveys shall also be required in wells which have had remedial work performed to change the production profile unless the remedial work results in only one sand interval being open to the well bore. (Source CO 173, 276)

(b) All completed production surveys taken during a calendar year be filed with the Commission by April 1 of the subsequent year. The Commission may request data be provided in advance of an annual submittal if required. (Source CO 173, 432)

(c) By administrative order, the Commission shall specify additional surveys should it be determined that the surveys submitted under (a) and (b) are inadequate. (Source CO 173)

DONE at Anchorage, Alaska and dated July 22, 1998.

David W. Johnston, Chairman

Camille Oechsli, Commissioner

Conservation Order No. 432