STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

333 West Seventh Avenue, Suite 100

Anchorage Alaska 99501
Re: THE APPLICATION OF Marathon Oil ) Conservation Order No. 461
Company ("Marathon") for an order granting )
an exception to the spacing requirements of ) Susan Dionne #1RD
20 AAC 25.055(a)(2) to provide for the ) Exploratory Well
drilling & testing of the Susan Dionne #1RD )
exploratory well to an undefined gas pool ) December 4, 2001
IT APPEARING THAT:

1. Marathon Oil Company ("Marathon") by letter dated September 6, 2001, requested an exception to the well spacing provisions of 20 AAC 25.055(a)(2). The exception would allow the proposed Susan Dionne #1RD exploratory well to be drilled and test produced for gas at a bottom hole location that is closer than 1,500 feet to a property line where ownership changes.

2. The Commission published notice of opportunity for public hearing in the Anchorage Daily News on September 24, 2001, pursuant to 20 AAC 25.540.

3. No protests to the application were received.

FINDINGS:

1) The Susan Dionne #1 well was formerly known as the McCoy Prospect #1 well, and before that it was known as the Ninilchik #1 well.

2) The surface location of this well is 1,489 feet from the east line (FEL) and 144 feet from the south line (FSL) of Section 6, T1S, R13W, Seward Meridian (SM). Union Oil Company of California ("Unocal") drilled the well to a total depth of 14,940 feet measured depth (14,777 feet true vertical depth), and subsequently plugged and abandoned it in 1962. The bottom hole location of the original well bore is 3,081 feet FEL and 652 FSL of Section 6, T1S, R13W, Seward Meridian (SM).

3) The history of operations within the well from 1962 through 1993 is presented in Conservation Order No. 211 (issued August 19, 1985) and in Conservation Order No. 309 Revised (issued March 18, 1993).

4) In November of 1985, Far North Oil and Gas, Inc. re-entered and cleaned the well out to 3,890 feet measured depth, which is 1,680 feet FEL and 133 feet FSL of Section 6, T1S, R13W, Seward Meridian (SM). The well was perforated from 3,776 to 3,786 feet measured depth, tubing and a packer were run, a tubing hanger was installed, a production tree was installed and tested, the well was swabbed, and gas was flared. Estimated production rates are presented on the Well Completion or Recompletion Report and Log for the well dated December 30, 1985, and received by the Commission on January 4, 1993.

5) On August 23, 1995, the Commission received an Application for Sundry Approvals, dated August 23, 1995, from Alaskan Crude Corporation ("ACC") requesting approval to flow test the McCoy Prospect #1 well. Approval was granted by the Commission on August 29, 1995.

6) On August 22, 2000, ACC submitted an application dated August 18, 2000 for sundry approval to flow test the McCoy Prospect #1 well. The Commission approved the application on September 15, 2000.

7) On December 15, 2000, the Alaska Department of Natural Resources (DNR) approved James W. White's assignment of 100 percent working interest in the tract containing Section 6, T1S, R13W, SM to Unocal. The effective date of the assignment is December 1, 2000. On March 9, 2001, DNR approved Unocal's assignment of 40 percent working interest in the tract to Marathon, effective February 1, 2001.

8) On September 6, 2001, Marathon submitted an application for a permit to drill the Susan Dionne #1RD sidetrack well. The Commission subsequently informed Marathon that a spacing exception would be required.

9) On September 13, 2001, Marathon requested, by letter dated September 6, 2001, an exception to the well spacing provisions of 20 AAC 25.055(a)(2).

10) The Susan Dionne #1RD well would be open for test production at an interval located less than 1,500 feet from a lease boundary where ownership changes.

11) Marathon presented a structure map of the top of the Tyonek T2 sand in the Susan Dionne #1RD vicinity. Marathon's structural interpretation of the subject area indicates the target interval within the Susan Dionne #1RD is located near the top of the geologic structure.

12) Testing of the Susan Dionne #1RD well is necessary to determine the presence of productive gas reservoir(s).

13) Marathon has made reasonable and diligent efforts to identify, locate, and contact all offset owners, landowners, and operators of all wells within 3,000 feet of the proposed target interval in the Susan Dionne #1RD well.

CONCLUSIONS:

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

2) Granting a spacing exception to allow reasonable test production of the Susan Dionne #1RD 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 Marathon with an opportunity to establish the volume of gas reserves in the general area.

4) Before regular production is permitted from the Susan Dionne #1RD 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 working over of the well as an exception, and so that drainage 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:

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

1) The operator must obtain the Commission's prior approval of a testing program for the Susan Dionne #1RD well.

2) If the well proves capable of hydrocarbon production, regular production will not be permitted until the Commission establishes a drilling unit for the pool and issues an order integrating the interests of owners within the drilling unit, absent voluntary integration by the owners.

DONE at Anchorage, Alaska and dated December 4, 2001.

Cammy Oechsli Taylor, Chair
Alaska Oil and Gas Conservation Commission

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

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

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