STATE OF ALASKA

ALASKA OIL AND GAS CONSERVATION COMMISSION

333 West Seventh Avenue, Suite 100

Anchorage Alaska 99501

Re: THE APPLICATION OF Union Oil Company ) Conservation Order No. 463
of California ("Unocal") for an order granting )
an exception to the spacing requirements of ) Pearl-1 Well
20 AAC 25.055(a)(2) to provide for the drilling ) Exploratory Well
and testing of the South Ninilchik Drilling Pad )
Pearl-1 exploratory well to an undefined gas pool. ) January 15, 2002

IT APPEARING THAT:

1. Union Oil Company of California ("Unocal") by letter dated September 24, 2001, requested an exception to the well spacing provisions of 20 AAC 25.055(a)(2). The exception would allow the proposed Pearl-1 exploratory well to be drilled and test produced for gas at a bottomhole location within 1500 feet of a property line.

2. The Commission published notice of opportunity for public hearing in the Anchorage Daily News on October 4, 2001, pursuant to 20 AAC 25.540.

3. The Commission did not receive a protest.

4. Unocal provided additional information to the Commission by e-mail on January 10, 2002.

FINDINGS:

1) The Pearl-1 well would be drilled as a straight hole from surface to total depth. Surface location will be 1970.40' FWL, 1569.50' FNL, T1S, R14W, Section 24.

2) Unocal notified all offset owners, landowners, and operators of all wells within 3,000 feet of the Pearl-1 well.

3) There are no other completed wells or wells capable of producing gas within the same governmental quarter section as the Pearl-1 Well, but there is an abandoned Mobil well within the same governmental quarter section.

4) Unocal represents that after thorough site assessment and wetlands delineation review of the prior approved "Albright-1 Well" it determined that the Pearl-1 is more suitably situated to meet the present needs of its exploration program because (1) permitting setbacks for the Albright-1 site put at risk existing contractual obligations with Enstar; (2) 2D seismic interpretations disproved any increased geologic risk by moving south of the Albright-1 location; and (3) Marathon's objections regarding correlative rights at the Albright hearing forshadowed additional delays and threatened the possibility of an adverse AOGCC ruling diluting Unocal's working interest in South Ninilchik.

5) There is no location on the Unocal lease where an exploratory gas well could be open to test production 1,500 or more feet away from a property line.

CONCLUSIONS:

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

2) Granting a spacing exception to allow drilling and reasonable test production of the Pearl-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) Before regular production is permitted from the Pearl-1 well, the Commission must take such action as will offset any advantage which the person securing the exception may have over the other producers by reason of the drilling of the well as an exception, and so that drainage from development 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 Pearl-1 well is approved under the following conditions.

1) The Pearl-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) This order does not authorize regular production.

DONE at Anchorage, Alaska and dated January 15, 2002.

Cammy Oechsli Taylor, Chair
Alaska Oil and Gas Conservation Commission

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

Conservation Order Index