STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

333 W. 7th Avenue, Suite 100

Anchorage Alaska 99501

Re: THE APPLICATION OF Union Oil Company ) Conservation Order No. 455
of California ("Unocal") for an order granting )
an exception to the spacing requirements of ) Albright #1
20 AAC 25.055(a)(2) to provide for the drilling ) Exploratory Well
and testing of the Albright #1 exploratory well to )
an undefined gas pool ) July 30, 2001

IT APPEARING THAT:

1. Union Oil Company of California ("Unocal") by letter dated April 17, 2001, requested an exception to the well spacing provisions of 20 AAC 25.055(a)(2). The exception would allow the proposed Albright #1 exploratory well to be drilled and test produced for gas at a bottomhole location that is closer than 1500 feet to a property line.

2. The Commission published notice of opportunity for public hearing in the Anchorage Daily News on April 24, 2001 and a revised notice was published on May 8, 2001, pursuant to 20 AAC 25.540.

3. In correspondence dated May 2, 2001 Marathon Oil Co. ("Marathon"), an offsetting owner, objected to the spacing exception requested by Unocal and requested a hearing on the matter.

4. On June 28, 2001 the requested hearing was held at the Commission's offices.

5. Marathon objected to Commissioner Seamount's participation in the hearing due to his previous involvement with subjects relating to the Albright #1 well as a Unocal employee.

6. Commissioner Seamount did not participate in the hearing or decision in this matter.

FINDINGS:

1) The Albright #1 well would be drilled as a straight hole to a bottom hole location 2277' from the west line (FWL), 550' from the north line (FNL) of Section 24, T1S, R14W, Seward Meridian (SM).

2) The Albright #1 well would be open for test production at an interval located 550 feet from a lease boundary where both owners and landowners change.

3) Unocal attempted to notify all offset owners, landowners, and operators of all wells within 3,000 feet of the Albright #1 well. Marathon did not receive mailed notice, but it had actual notice as a result of seeing the Commission's published notice.

4) Unocal's witness testified that the proposed Albright #1 exploratory gas well is necessary to establish the volume of gas reserves Unocal owns in the general area, in order to commit the reserves to a proposed pipeline construction project, and that it sought to drill the well at this time due to contractual time constraints related to the commitment of those reserves.

5) Unocal presented two structure maps of the top of the Tyonek Formation in the Albright #1 vicinity. One contains Unocal lease status information and the other illustrates surface conditions in the area with special reference to roads, swamps, and marshes.

6) Unocal's witness testified that for the purpose of proving reserves, the optimal location for the Albright #1 well is as far as possible up structure from the Mobil Ninilchik Unit #1 well.

7) The Unocal structural interpretation of the subject area indicates the Albright #1 location is structurally high relative to the nearby Mobil Ninilchik Unit #1 well and is near the structurally highest location possible on 100% Unocal leases.

8) Unocal's witness testified that property owners adjacent to the lease containing the proposed Albright #1 location and in structural locations equivalent to the proposed location had objected to Unocal's drilling proposal.

9) Unocal's witness testified that surface access and surface topographical conditions on the subject lease further constrained possible locations to the proposed location.

10) Marathon's witness disagreed with Unocal's structural interpretation in that he believed a prominent fault was located incorrectly.

11) Marathon's witness testified that Marathon believes the proposed well could be located in a more advantageous structural location.

12) Unocal's witness testified that if successful the well would be tested but not completed as a well capable of regular production until correlative rights issues had been resolved with adjacent owners.

13) Due to the size and shape of the lease on which Unocal proposes to drill the Albright #1 well, there is no location on that lease where an exploratory gas well could be open to test production 1,500 or more feet away from a property line.

14) Due to the size and shape of the other tracts in the governmental section containing the lease on which Unocal proposes to drill the Albright #1 well and due to the configuration of the structure intended to be explored by that well, there is no other location in that governmental section where an exploratory gas well could be open to test production substantially up structure from the Mobil Ninilchik Unit #1 and also 1,500 or more feet away from a property line.

15) Drilling and testing one or more wells in addition to the abandoned Mobil Ninilchik Unit #1 well is reasonably necessary to determine the extent of productive gas reservoir(s) within Unocal's property.

16) Existing well, seismic, and topographical data provide a reasonable basis for Unocal to conclude that the proposed well location is optimally situated within its lease and within the governmental section containing its lease for the purpose of establishing the volume of gas reserves it owns in the general area.

CONCLUSIONS:

1) An exception to 20 AAC 25.055(a)(2) is necessary to allow drilling and test production of the Albright #1 exploratory gas well.

2) Granting a spacing exception to allow drilling and reasonable test production of the Albright #1 exploratory well will not result in waste or jeopardize the correlative rights of adjoining or nearby owners.

3) Granting this spacing exception is reasonably necessary to provide Unocal with a timely opportunity to establish the volume of gas reserves it owns in the general area.

4) No other location on Unocal's lease would enable test production for gas in accordance with the spacing rules under 20 AAC 25.055.

5) No other location within the governmental section containing Unocal's lease would enable test production for gas substantially up structure from the previously drilled well in the structure to be explored and in accordance with the spacing rules under 20 AAC 25.055.

6) Before regular production is permitted from the Albright #1 well, the Commission must take such action as will offset any advantage which the person securing the exception may have over other producers by reason of the drilling of the well as an exception, and so that drainage from developed units to the tract with respect to which the exception is granted will be prevented or minimized. AS 31.05.100(b).

NOW, THEREFORE, IT IS ORDERED:

Unocal's application for exception to the well spacing provisions of 20 AAC 25.055 (a)(2) for the purpose of drilling and testing the Albright #1 well is approved under the following conditions.

1) The Albright #1 exploratory gas well must be logged and tested to determine the well's potential to produce hydrocarbons.

2) The operator must obtain the Commission's prior approval of a testing program for the well.

3) The Albright #1 well may not be placed on regular production until the Commission takes additional action, upon petition, and after notice and hearing, to offset any advantage Unocal may have over other owners by reason of drilling Albright #1 to the exception location and to allow affected owners to produce their just and equitable share of hydrocarbons. Such Commission action may include establishing a new drilling unit and providing for the pooling of separately owned properties within the drilling unit.

DONE at Anchorage, Alaska and dated July 30, 2001.

Cammy Oechsli Taylor, Chair
Alaska Oil and Gas Conservation Commission

Julie M. Heusser, Commissioner
Alaska Oil and Gas Conservation Commission

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