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 OF CALIFORNIA ( UNOCAL) for an order to establish pool rules for development of the Happy Valley Beluga/Tyonek Gas Pool, Deep Creek Unit, Kenai Peninsula, Alaska

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Conservation Order No. 553

Happy Valley Field
Happy Valley Beluga/Tyonek Gas Pool
Deep Creek Unit

March 8, 2005

IT APPEARING THAT:

  1. By application dated December 1, 2004, UNOCAL in its capacity as Unit Operator of the Deep Creek Unit (DCU) requested an order from the Alaska Oil and Gas Conservation Commission ("Commission") to define a proposed Happy Valley Beluga/Tyonek Gas Pool within the DCU and to prescribe rules governing the development and operation of the pool.
  2. Notice of a public hearing was published in the Anchorage Daily News on December 10, 2004.
  3. The Commission held a public hearing January 13, 2005 at 9:00 AM at the Alaska Oil and Gas Conservation Commission at 333 West 7th Avenue, Suite 100, Anchorage, Alaska.

FINDINGS:

  1. Operator: UNOCAL is the Operator of the property in the area proposed for development. UNOCAL uses the name Happy Valley Field in reference to this development project.
  2. Development Area: The Happy Valley Field is within the northern portion of Deep Creek Unit, and located approximately six miles east of the town of Ninilchik on the Kenai Peninsula.
  3. Delineation History: Unocal drilled the Happy Valley #1 discovery well in Sec. 22-T2S-R13W to a total measured depth of 10,871 feet in June 2003. The well tested gas from two different Lower Tyonek reservoirs. The Happy Valley field discovery was confirmed by the Happy Valley #2 well drilled in July, 2003. This well flowed gas from two other Lower Tyonek reservoirs not seen in Happy Valley #1. Unocal has drilled nine (9) additional delineation wells and acquired approximately 65 line miles of new 2D seismic data over the area in an attempt to delineate the structure and reservoir distribution within the field. The Beluga and Tyonek Formations have been shown to be commercially productive in a number of these wells. Unocal has constructed a 15-mile natural gas transmission pipeline to, and gas production facilities at, the Deep Creek Unit, Happy Valley ‘A’ Pad. Gas sales commenced November 5, 2004.
  4. Pool Identification: The proposed Happy Valley Beluga/Tyonek Gas Pool is an accumulation of hydrocarbons common to, and correlating with, the interval between the measured depths (“MD”) of 2,997 feet and 10,046 feet in the Superior Happy Valley #31-22 Exploration Well.
  5. Stratigraphy/Reservoir Properties: The Happy Valley field currently produces dry gas from both Beluga and Tyonek reservoirs. Gas composition is 98+% methane. The reservoirs are all relatively low permeability. The entire reservoir system was deposited in freshwater channel and braided stream environments. Individual sandstone intervals are commonly discontinuous over the areal extent of the field. The lenticular and discontinuous, low permeability sandstones form a complex reservoir.
    1. Beluga Formation: The Beluga Formation reservoirs vary in depth from approximately 3,070’ TVD to 5,800’ TVD. Porosity ranges from 10-18%. The reservoir pressure varies from a 0.44 to a 0.46 psi/ft gradient. Obtaining measurable gas flow from the Beluga Formation has required multiple intervals to be open simultaneously. Nodal analysis has been used to estimate reservoir quality in the 0.05-0.5 millidarcy (md) range for the Beluga Formation. Intervals exist that have a lower permeability but intervals have not been encountered where a higher permeability has been calculated.
      It is generally accepted that the Beluga Formation reservoirs have high clay content. Based on the reservoir quality of this rock, liquid flow is inefficient at best. Water production has not been observed and it is expected that a wet interval will produce as an unconsolidated sand-providing fill into the tubing.
    2. Tyonek Formation: The Tyonek Formation reservoirs vary in depth from approximately 5,800’ TVD to 10,108’ TVD. The reservoir pressure has an approximate 0.44 psi/ft gradient. Porosity ranges from 10-18%.
      The lowest relative permeability to gas measured with gas flow has been 0.025 md while the highest relative permeability to gas measured has been 1.8 md. The majority of the Tyonek Formation reservoirs encountered have permeabilities less than 1.0 md.
      It is generally accepted that the Tyonek Formation reservoirs have a high clay content including mobile clays. Consequently, intervals deemed wet have been done so based on a fluid level rise over an extended period of time. Based on the reservoir quality of this rock liquid flow is inefficient at best.
  6. Structure: The Happy Valley structure is an open doubly plunging anticline, oriented NE-SW with minor NW-SE trending faults. The closed area on the crest of the structure exceeds the proposed pool area.
  7. Trap Configuration: Well test information combined with stratigraphic correlations indicates that typical effective drainage areas for Happy Valley Field wells are on the order of 100’s of acres. These data indicate that some stratigraphic discontinuities are present in each gas sand. Future drilling may establish if stratigraphic traps are present on the flanks of the Happy Valley Anticline.
  8. In Place and Recoverable Gas Volumes: The following summarizes estimated in place gas and recoverable gas volumes for the Beluga and Tyonek Formations:
    Beluga Tyonek
    Gas in place, BCF 56.3 37.4
    Recoverable Gas, BCF 23 15.6
  9. Reservoir Management: Due to the measured low flow rates from individual reservoirs, it will be commercially necessary for Unocal to commingle production from the Lower and Upper Tyonek and Beluga Formation reservoirs. Consistent with the approved single Happy Valley Participating Area, Unocal proposes a single Happy Valley Beluga/Tyonek Pool encompassing all of the currently identified Beluga and Tyonek Formation reservoirs within the field, and also any future new reservoirs of the same age that might be found within the mapped limits of the Happy Valley Field. This will maximize resource recovery by: To ensure optimal resource recovery, Unocal proposes to limit initial commingled producing intervals to within 4000’ vertical feet within the same wellbore. Consistent with the complex nature of these low permeability reservoirs, Unocal is requesting no restrictions on wellbore spacing as tight spacing is expected necessary to maximize resource recovery.
  10. Reservoir surveillance plans: Unocal requests that the annual bottom hole pressure measurement requirement be satisfied by a single key well pressure survey conducted at least once per year. Bottom hole pressure may be computed from surface measurements taken with an accurate pressure gauge provided that it can be accurately extrapolated to bottom hole conditions. The pressures will be referenced to 6700’ TVD. The original reservoir pressure at 6700’ ss is 2948 psia.
    As the proposed pool is comprised of low permeability reservoirs, wellbore pressure will be generally less than reservoir pressure limiting cross flow potential. Estimation of flow contribution and detection of cross flow within the pool will be conducted through the use of production logs.
  11. Wellbore Construction: Unocal proposes that wells drilled in the Happy Valley Beluga/Tyonek Pool will have a minimum surface casing point 1000 ft TVD and a maximum depth of 3000’ TVD. In addition UNOCAL requests the following drilling and operational approvals;
    1. Unocal requests diverterless drilling provided no shallow gas hazards are identified.
    2. EXCAPE technology may be employed to optimize resource recovery. With the EXCAPE™ technology no production packer is utilized. Further, it is requested that production packer requirements of 20 AAC 25.200(d) be modified to accept annular cement as a packer for EXCAPE wellbores without requirement of a mechanical integrity test.
    3. Unocal requests the Alaska Oil and Gas Conservation Commission (AOGCC) not establish any requirement for installation of sub-surface safety valves (SSSVs) in wellbores in the Happy Valley field. Unocal proposes to install a surface safety valve (SSV) on each well that is capable of unassisted flow to surface. Unocal also proposes to conduct annual pressure testing of the SSV to maximum anticipated shut-in pressure.

CONCLUSIONS:

  1. Pool Rules for the development of the Happy Valley Beluga/Tyonek Gas Pool within the Happy Valley Field in the Deep Creek Unit are appropriate at this time.
  2. The Happy Valley Beluga/Tyonek Gas Pool reservoirs are composed of channelized fluvial and braided stream deposits that have poor lateral continuity and typically very low permeabilities. The pool is composed of numerous individual low productivity sandstone intervals.
  3. Low individual sandstone productivity and poor interwell continuity will require commingling a large number of sands, potentially more than twenty per well.
  4. Due to low permeability reservoirs, wellbore pressure will be generally less than reservoir pressure limiting cross flow potential. Determination of flow contribution and indication of cross flow within the formations will be conducted through the use of production logs.
  5. The Happy Valley Field is in the early stages of development. Phase I development has focused upon determination of reservoir delivery and well operability.
  6. The Happy Valley Field is a series of gas accumulations with elements of both structural trapping and stratigraphic discontinuities. Future drilling may encounter off-structure stratigraphic traps and the Happy Valley Beluga/Tyonek Gas Pool area may need to be expanded.
  7. Phase II activities may include but are not limited to additional drilling from a second pad (B), and refining pay recognition and stimulation techniques.
  8. Effectively draining the complex low permeability Happy Valley Beluga/Tyonek Gas Pool reservoirs will require unconventionally close gas well spacing, the optimal spacing for these wells has not yet been determined.
  9. Monitoring of reservoir performance on a regular basis will help ensure proper management of the pool. Annual reports and technical review meetings will keep the Commission apprised of reservoir performance and will ensure that future development plans promote greater ultimate recovery.

NOW, THEREFORE, IT IS ORDERED:

The following rules apply to development operations for the Happy Valley Beluga/Tyonek Gas Pool within the following affected area:
Seward Meridian
Township Range, SM Lease Sections
T2S-R13W C-061588 Section 15: SE1/4SW1/4
C-061589 Section 21 E1/2NE1/4, SW1/4NE1/4, E1/2SW1/4, SE1/4
ADL 384380 That portion of US Survey 9496, lots 3 & 4 within Section 22, W1/2 and the W1/2NE1/4,
C-061590 Section 22: W1/2 and NW1/4NE1/4 excluding lots 3 and 4 of US Survey 9469
Section 27: NW1/4NW1/4
Section 28: NE1/4, NE1/4NW1/4, S1/2NW1/4, N1/2SW1/4, NW1/4SE1/4

Rule 1 Pool Definition
The Happy Valley Beluga/Tyonek Gas Pool is defined as gas bearing intervals common to and correlating with the interval between the measured depths of 2,997 and 10,046 feet in the Superior Happy Valley No. 31-22 exploration well.

Rule 2 Well Spacing
Spacing units shall be a minimum of 10 acres. The Happy Valley Beluga/Tyonek Gas Pool shall not be opened in any well closer than 1500’ to the external boundary of the Deep Creek Unit.

Rule 3 Wellbore Construction Practices

  1. Wellbores shall not be perforated for production through intervals exceeding 4,000 vertical feet.
  2. Sub-surface safety valves (SSSVs) shall not be required in wellbores in the Happy Valley Field equipped with surface safety valves.

Rule 4 Annual Reservoir Review
An annual report must be filed on or before April 1 of each year. The report shall include an overview of reservoir performance, future development and reservoir depletion plans, and surveillance information for the prior calendar year, including:

  1. Reservoir pressure map at datum, summary and analysis of reservoir pressure surveys within the pool. To the extent possible, estimates of reservoir pressure shall be reported by major formation (Beluga and Tyonek);
  2. Results and, where appropriate, analysis of production, temperature, tracer surveys, observation well surveys, and any other special monitoring surveys;
  3. Estimates of yearly production subdivided by major contributing zones;
  4. Progress of plans and tests to expand the productive limits of the pool; and
  5. Results of surface safety valve testing.

Rule 5 Administrative Action
Unless notice and public hearing is otherwise required, the Commission may administratively waive the requirements of any rule stated above or administratively amend any rule as long as the change does not promote waste or jeopardize correlative rights, is based upon sound engineering and geoscience principles, and will not result in an increased risk of fluid movement into freshwater.

DONE at Anchorage, Alaska and dated March 8, 2005.

John K. Norman, Chair
Alaska Oil and Gas Conservation Commission

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


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