The Unitization Process

1
The Unitization Process

• By Carol Lee, Petroleum Land Manager
• Revised August 20, 2003

2
Unit Process

• 1. Acreage is offered in Areawide Lease Sales.
• 2. Lease terms are established before each
  Lease Sale.
• 3. The lessees identify a prospect and apply to
  form a unit.
• 4. The lessees in the proposed unit area select
  a Unit Operator.
• 5. The Unit Operator and the State negotiate
  the terms of the Unit Agreement, the unit
  boundaries, and the Unit Plan of Exploration.
• 6. The Unit Operator proposes forming a
  Participating Area.
• 7. The Unit Operator and the State agree on a
  Plan of Development and tract allocation factors
  for the Participating Area.
• 8. A unit may include multiple participating
  areas.
• 9. The unit area may be contracted or expanded.
  
• 10. After a stated period of time the unit area
  automatically contracts down to the participating
  area.

3
Acreage is offered in Areawide Lease Sales
20E
19E
6
4
2
5
3
1
Tract 6
Tract 5
Tract 2
Tract 1
6
4
5
3
1
2
7
9
10
12
7
9
10
12

• Each area is offered once a year in Areawide
  Lease Sales North Slope, Beaufort Sea, Cook
  Inlet.
• All tracts are offered annually.
• Each lease sale tract can contain up to nine
  sections.

15
14
13
18
17
16
15
14
13
18
17
16
19
21
23
20
22
24
Tract 3
Tract 4
Tract 8
Tract 7
23
24
19
21
20
22
6N
27
25
30
28
27
25
30
28
31
33
35
32
34
36
31
33
35
32
34
36
Tract 9
Tract 10
Tract 13
Tract 14
6
4
2
5
3
1
6
4
5
3
1
2
7
9
10
12
7
9
10
12
15
14
13
18
17
16
15
14
13
18
17
16
5N
Tract 11
Tract 12
Tract 15
Tract 16
19
21
23
20
22
24
23
24
19
21
20
22
27
25
30
28
27
25
30
28
31
33
35
32
34
36
31
33
35
32
34
36
4
Lease terms are established before each Lease Sale
Tract 6
Tract 5
Tract 2
ADL 300102
ADL 300302
ADL 300303
Tract 1
ADL 300101
Sale 1 12.5 RoyaltyLeases effective 1/1/2000
Expire 12/31/2009
Tract 4
ADL 300301
Tract 3
ADL 300103
Tract 8
ADL 300104
Tract 7
ADL 300105

• Each tract that receives a bid is assigned an
  (Alaska Division of Lands) ADL number.

Sale 2 16.67 RoyaltyLeases effective 1/1/2001
Expire 12/31/2010
Tract 9
Tract 10
Tract 13
Tract 14
ADL 300304
ADL 300305
ADL 300203
ADL 300204
Sale 3 12.5 Royalty, 30 Net Profit
ShareLeases effective 1/1/2002 Expire Dec. 31,
2011
Tract 11
Tract 12
Tract 15
Tract 16
ADL 300206
ADL 300205
ADL 300202
ADL 300201
5
Lease Ownership
Tract 6
Tract 5
ADL 300102
ADL 300101
ADL 300303
ADL 300302
BP 100
Tract 4
ADL 300301
Tract 7
Tract 8
ADL 300104
ADL 300105
Tract 3
ADL 300103
CHEVRON 100
BP 50 CHEVRON 50
Tract 9
Tract 10
Tract 13
Tract 14
ADL 300204
ADL 300203
ADL 300305
ADL 300304
UNOCAL 100
Tract 11
Tract 12
Tract 15
Tract 16
ADL 300206
ADL 300201
ADL 300205
ADL 300202
WINTHER 100
6
BP identifies a prospect and proposes forming the
Serendipity Unit.
ADL 300102 Chevron
ADL 300302 BP
Tract 2
Tract 3
ADL 300303 BP
Reservoir
Tract 1
Tract 6
Tract 5
ADL 300105 BP
ADL 300103 BP
ADL 300104 BP
Proposed Unit Boundary
ADL 300203 Unocal
ADL 300204 BP
ADL 300305 Unocal
Unit Tract
7
Unit Application Process100 days from
Application to Decision

• Public Notice within 10 days of application
• 30-day Public Comment Period
• Decision within 60 days after close of Public
  Comment Period

8
Unit Application

• Unit Agreement
• Exhibit A - List of leases and ownership
• Exhibit B - Map of the unit area
• Plan of Exploration
• Technical Data to support the application
• Unit Operating Agreement
• Application Filing Fee - 5,000.00

9
Serendipity UnitExhibit A
10
Serendipity UnitExhibit B
Tract 2 ADL 300102 Chevron
Tract 1 ADL 300302 BP/Chevron
Reservoir
Tract 3 ADL 300104 BP
Tract 4 ADL 300103 BP
Unit Boundary
Unit Tract
11
Serendipity UnitPlan of Exploration

• 3-year Term June 1, 2000 - May 31, 2003
• Seismic Program by May 31, 2001
• Exploratory Well by May 31, 2002
• Submit an application to form a Participating
  Area by by May 31, 2003
• If the unit operator fails to meet any of the
  three obligations in a timely manner the unit
  will terminate.

12
Leases are Segregated upon Unitization
ADL 300555
ADL 300556
Tract 1 ADL 300302
SERENDIPITY UNIT BOUNDARY
Tract 2 ADL 300102
New Leases, ADL 300555 Segregated out of ADL
300302 andADL 300557 Segregated out of
ADL 300103
Tract 3 ADL 300104
ADL 300557
Tract 4 ADL 300103
New Lease, ADL 300556 Segregated out of ADL 300102
13
Serendipity UnitPlan of ExplorationJune 1, 2001
1st Annual Report

• Seismic data acquired and processed.
• Presentation of geologic data.
• Exploratory well location identified.

14
The lessees drill an exploratory well on Tract 3
Tract 1 ADL 300302 BP/Chevron
Tract 2 ADL 300102 Chevron
Well
Reservoir
Tract 4 ADL 300103 BP

Tract 3 ADL 300104 BP
Unit Boundary
Unit Tract
15
Serendipity UnitInitial Plan of ExplorationJune
1, 2002 2nd Annual Report

• Drilled Serendipity Unit Well 1
• Will apply to form a participating area

16
The Unit Operator Submits an Application to form
the Atlantis Participating Area

• Exhibit C Tract Allocation Schedule
• Exhibit D Map of PA Boundary
• Plan of Development for the Atlantis PA
• Plan of Exploration for Unit Area outside of
  Atlantis Participating Area

17
Serendipity UnitAtlantis Participating
AreaExhibit C
18
Atlantis Participating AreaExhibit D
Tract 2 ADL 300102 Chevron
Tract 1 ADL 300302 BP/Chevron
Well
Reservoir
Tract 4 ADL 300103 BP
Tract 3 ADL 300104 BP
Unit Boundary
Unit Tract
PA Tract
19
Atlantis Participating AreaPlan of Development

• 5-year plan June 1, 2003 - May 31, 2008
• Drill three more development wells
• Build stand-alone facilities for processing
  hydrocarbons

20
Unocal Lease Operation

• Unocal applies to drill a well on ADL 300305 and
  perform well tests during a 90-day test period.
• Test fluids to be transported to an adjacent unit
  and commingled with that units production.

21
The lessee drills a well to test the extent of
the reservoir.
Tract 2 ADL 300102 Chevron
Tract 1 ADL 300302 BP/Chevron
Well
Reservoir
Tract 4 ADL 300103 BP
Tract 3 ADL 300104 BP
Unit Boundary
ADL 300305 Unocal
Unit Tract
PA Tract
22
Unit Expansion Process100 days from Application
to Decision

• Public Notice within 10 days of application
• 30-day Public Comment Period
• Decision within 60 days after close of Public
  Comment Period

23
Unit Expansion Application

• Unit Agreement
• Exhibit A - List of leases and ownership
• Exhibit B - Map of the unit area
• Plan of Exploration
• Technical Data to support the application
• Unit Operating Agreement
• Application Filing Fee - 500.00

24
The unit operator applies to expand the
Serendipity Unit and the Atlantis Participating
Area
Tract 2 ADL 300102 Chevron
Tract 1 ADL 300302 BP/Chevron
Well
Reservoir
Tract 4 ADL 300103 BP
Tract 3 ADL 300104 BP
Unit Boundary
Unit Tract
Tract 5 ADL 300203 Unocal
Tract 6 Unocal ADL 300305l
PA Tract
25
Serendipity UnitExhibit A
26
Atlantis Participating AreaExhibit C
27
Serendipity Unit2nd Plan of Exploration

• 2-year term Nov. 1, 2003 - Oct. 31, 2005
• Acquire seismic data over northern unit area to
  confirm oil prospect
• If seismic data is encouraging, drill exploration
  well
• If the Unit Operator fails to fulfill seismic and
  drilling commitments Tracts 1 and 2 will contract
  out of the unit area.

28
The unit operator proposes an Exploration Well
Tract 2 ADL 300102 Chevron
Tract 1 ADL 300302 BP/Chevron
Well
Reservoir
Tract 4 ADL 300103 BP
Tract 3 ADL 300104 BP
Unit Boundary
Unit Tract
Tract 5 ADL 300203 Unocal
Tract 6 Unocal ADL 300305l
PA Tract
29
Serendipity Unit2nd Plan of ExplorationNovember
1, 2004 1st Annual Report

• Acquired Seismic Data
• Presented Interpretation of Seismic Data
• Plan to Drill Serendipity Unit Well 2
• Request Approval of Tract Operation for testing
  and evaluating production.

30
Serendipity Unit2nd Plan of ExplorationNovember
1, 2005 2nd Annual Report

• Drilled Serendipity Unit Well 2
• Present results from Tract Operation.
• Apply to form Utopia Participating Area.

31
Utopia Participating AreaExhibit C
32
Utopia Participating AreaExhibit D
Tract 1 ADL 300302 BP/Chevron
Tract 2 ADL 300102 Chevron
Well
Reservoir
Tract 4 ADL 300103 BP
Tract 3 ADL 300104 BP
Unit Boundary
Unit Tract
Tract 5 ADL 300203 Unocal
Tract 6 Unocal ADL 300305l
Utopia PA
33
Utopia Participating AreaPlan of Development

• 5-year plan Feb. 1, 2005 - Jan. 31, 2010
• Sustain production from Serendipity Unit Well 2
• Negotiate facility sharing agreement with
  Atlantis PA for processing hydrocarbons

34
Serendipity Unit3rd Plan of Exploration

• 2-year term Nov. 1, 2005 - Oct. 31, 2007
• Apply for Tract Operation to Extend Unocal Well
  1 to explore deeper horizon.
• Test fluids to be commingled with Atlantis PA
  production.
• If well tests are successful, form new
  participating area.

35
The Unit Operator Submits an Application to form
the Shangri La Participating Area

• Exhibit C Tract Allocation Schedule
• Exhibit D Map of PA Boundary
• Technical Data to support PA application
• Plan of Development for the Shangri La PA

36
Shangri La Participating AreaExhibit C
37
Shangri La Participating AreaExhibit D
Tract 2 ADL 300102 Chevron
Tract 1 ADL 300302 BP/Chevron
Well
Reservoir
Tract 4 ADL 300103 BP
Tract 3 ADL 300104 BP
Unit Boundary
Unit Tract
Tract 5 ADL 300203 Unocal
Tract 6 Unocal ADL 300305
Shangri La PA
38
Shangri La Participating AreaPlan of Development

• 5-year plan Feb. 1, 2007 - Jan. 31, 2012
• Sustain production from Unocal Well 1
• Negotiate facility sharing agreement with
  Atlantis PA for processing hydrocarbons

39
Serendipity Unit
Tract 1 ADL 300302 BP/Chevron
Tract 2 ADL 300102 Chevron
Well
Reservoir
Tract 4 ADL 300103 BP
Tract 3 ADL 300104 BP
Unit Boundary
Unit Tract
Tract 5 ADL 300203 Unocal
Atlantis PA
Tract 6 Unocal ADL 300305l
Shangri La PA
Utopia PA
40
Automatic Contraction

• In 2010 the Serendipity Unit contracts down to
  only the area within a participating area.
• Tract 2 contracts out of the unit.
• ADL 300102 is beyond its primary term and expires.

41
Serendipity Unit
Tract 1 ADL 300302 BP/Chevron
Well
Reservoir
Tract 4 ADL 300103 BP
Tract 3 ADL 300104 BP
Unit Boundary
Unit Tract
Tract 5 ADL 300203 Unocal
Atlantis PA
Tract 6 Unocal ADL 300305l
Shangri La PA
Utopia PA