1. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 1 Alaska Oil and Gas Conservation Commission (AOGCC) Presentation August 14, 2001 to Joint Committee on Natural Gas Pipelines Alaska North Slope

2. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 2 Outline of Testimony Overview of AOGCC Role Conservation Orders Affecting North Slope Gas Sales Evaluation Process for Major Gas Sales –Overview of Contractor Scoping Study Objectives Recommendations

3. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 3 Alaska Oil and Gas Conservation Commission (AOGCC) Mission Protect the public interest in oil and gas resources. The Oil and Gas Conservation Act requires all oil and gas drilling, production and measuring operations to be conducted in a manner that prevents physical waste of the resource, promotes greater ultimate recovery and affords all owners of oil and gas rights an equal opportunity to recover their fair share of the resource. Independent, quasi-judicial agency Established under the Alaska Oil and Gas Conservation Act (AS 31). Regulatory authority- outlined in Title 20, Chapter 25 of the Alaska Administrative Code.

4. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 4 AOGCC Function PREVENT PHYSICAL WASTE OF THE RESOURCE Technical evaluation of proposals for major gas sales, enhanced oil recovery, and gas cap liquids recovery. Evaluate drilling programs to ensure proper well design, construction and well control equipment. Inspect wells and drilling projects to verify compliance with approved regulations, procedures and safety requirements for drilling and production practices. PROTECT CORRELATIVE RIGHTS Provide all owners of oil and gas rights the opportunity to recover their fair share of the resource through well spacing provisions, permit review, and pooling authority. ADJUDICATE DISPUTES BETWEEN OWNERS Provide a public forum to resolve disputes between owners.

5. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 5 AOGCC Function ENSURE GREATER ULTIMATE RECOVERY Analyze production data, including reservoir pressure, gas-oil ratios, water cut, etc., to ensure these variables fall within the accepted parameters necessary to provide for greater ultimate recovery. Review and approve development proposals, including plans for enhanced oil recovery operations. INDEPENDENTLY ASSESS OIL AND GAS DEVELOPMENT Independently audit/verify that oil and gas exploration & development proposals are in compliance with the purposes and intent of Title 31. PROTECT ALASKA'S UNDERGROUND SOURCES OF DRINKING WATER Provide engineering and geological review of all activities that affect potential sources of drinking water.

6. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 6 AOGCC PRIMARY SERVICES Regulate, monitor and inspect all subsurface activities directly related to oil and gas exploration and production including the design and integrity of wells, well control procedures and equipment, reservoir management plans and proposed underground injection programs. –Issue pooling rules and conservation orders. –Approve and monitor plans for reservoir development and enhanced oil recovery. –Approve permits for initial drilling, re-drill, sidetrack, and remedial well operations. This includes the evaluation and approval of proposed designs for drilling fluids, well control, casing, cementing and well completion operations. –Inspect drill rigs and wells to insure compliance with AOGCC regulations. –Witness safety valve, mechanical integrity, and blowout preventer tests. –Witness meter-proving, calibration, and oil quality tests. –Enforce well spacing rules, monitor production rates, injection well pattern, gas/oil/water ratios, and pressure maintenance efforts. –Monitor and evaluate gas flaring. –Collect and maintain all oil and gas production records. –Collect and maintain all well history files and well log records. –Administer Alaska's Underground Injection Control (UIC) program and the annular waste disposal program.

7. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 7 Powers and Duties of Commission Related to Major Gas Sales Investigate to determine whether or not waste exists or is imminent. Require plans of reservoir development and operation in order to prevent waste, insure a greater ultimate recovery of oil and gas, and protect correlative rights. Regulate for conservation purposes the quantity and rate of the production of oil and gas. See AS 31.05.030.

8. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 8 Waste In addition to its ordinary meaning includes The inefficient, excessive, or improper use of, or unnecessary dissipation of reservoir energy; Operating or producing in a way that reduces the amount of oil or gas recovered under operations conducted in accordance with good oil field engineering practices. See AS 31.05.170 (14)

9. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 9 Applicable Conservation Orders Pool Rules for the Prudhoe Oil Pool - Conservation Order 341C Consolidated Pool Rules for Prudhoe Oil Pool Rule 9 Pool Maximum Gas and Oil Offtake Rates Maximum 2.7 billion standard cubic feet per day of gas offtake (BSCFD) Contemplated a 2 BCFD pipeline sales rate (salable product) Gas offtake from PBU has always been well below this set limit Rule 9 written in 1977. Rule 12 Prudhoe Bay Miscible Gas Project Operator to maintain the reservoir pressure at 250 psi above the minimum miscibility pressure.

10. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 10 Fundamental assumptions upon which rule 9 was established are not valid. PBU Gas Offtake rules must be based upon Current knowledge Sound reservoir management PBU Operators have stated to AOGCC that gas sales may have a detrimental effect on oil recovery. The AOGCC has not yet been provided with current technical information regarding Major Gas Sales Current Status

11. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 11 AOGCC Gas Sales Evaluation Process Scoping Study Technical evaluation

12. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 12 Gas Sales Scoping Study Consultant Review - Blaskovich Services, Inc. June 2001 - Objectives Identifiy conservation issues associated with gas sales from the Prudhoe Oil Pool. Identify technical issues affecting ultimate hydrocarbon recovery Consider multiple complex interactive recovery mechanism Provide alternatives for AOGCC technical evaluation

13. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 13 Conclusion - Consultant Review Oil Recovery Impact –Oil and Condensate Recovery likely to decrease under Gas Sales –Unless delayed until later into field –However, if carefully planned and managed Gas Sales –Can extend field life –Potentially increase total Hydrocarbon Recovery Maximum Recovery vs. Owner Economics Industry Precedents –Few industry precedents for early gas withdrawal –Field management difficult, but does not mean this endeavor will be unsuccessful Options –Independent Studies –Critique and peer Review of owner studies –Work directly on Owner project teams

14. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 14 Recommended Approach Independent Analysis and Critique –Smaller, Mechanistic Models to study processes Focus on Technical issues of greatest impact on decisions Do a credible job Concurrent with Owner Studies (potentially ahead) Use WIO data whenever possible –Rely on basic data, avoid debates about detailed models –Serious critique of WIO data & results –Credibility high if right questions are asked (based upon work above) –Avoid endless debate about who has the best model This is a Combination of Options 1C and 3 from Blaskovich Study

15. August 14, 2001AOGCC / Jt. Committee on Natural Gas Pipelines 15 Timing Issues … AOGCC approvals dependent upon: oAccess to Operator information. oAvailability of agency Staff. oAccess to specialized expert(s) trained in and familiar with large scale compositional reservoir modeling techniques.