In re: )

Rules of Banptcy Practice and Procedure of

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

Chapter 11

PACIFIC ENERGY RESOURCES LTD., et al., i )

Debtors. )

Case No. 09-10785 (KJC) (Jointly Administered)

Hearing date/time: 9/1/09 at 10:00 a.m.
Related Docket Nos. 455 and 781

DEBTORS' MOTION FOR LEAVE TO EXCEED REPLY BRIEF PAGE LIMITATION

The above-captioned debtors and debtors in possession (the "Debtors") hereby.
submit this motion (the "Motion") for entry of an order pursuant to rules 7007-2 of

the Local

the United States Banptcy Cour for the

District of

Delaware (as amended, the "Local Rules") authorizing the Debtors to exceed the
Local Rule 7007-2 for replies with respect to the Debtors' Hearing

twenty (20) page limit of

Memorandum And Reply (the "Reply") To Supplemental Objection Of

Union Oil Company Of

Pacific Energy Alaska Operating LLC

California ("Union") To Debtors' Alternative Motion Of

For An Order Authorizing Abandonment of Interests In Oil And Gas Properties At Trading Bay,

Alaska And Rejection Of Executory Contracts Relating Thereto (the "Supplemental Objection"). A hearing on the Supplemental Objection, any responses and the Reply is scheduled to be heard
before this Court (the "Hearing") on September 1,2009 at 10:00 a.m. in Wilmington, Delaware.
In support of the relief

requested in this Motion, the Debtors respectfully states as follows:

i The Debtors in these cases, along with the last four digits of each of the Debtors' federal tax identification
number, are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska

Holdings, LLC (tax J.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021); San Pedro Bay Pipeline Company (1234); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The
mailng address for all of

the Debtors is 111 W. Ocean Boulevard, Suite 1240, Long Beach, CA 90802.

OOOOI-OOI\DOCS_DE: 152458. I

1. Paragraph 2(1)(vi) of

this Cour's General Chambers Procedures provides

that "(a)ll briefs and memoranda (in main banptcy cases and in adversary proceedings) must
comply with DeL. Banr. LR 7007-2.
2. Local Rule 7007-2(a)(iv) provides that "(w)ithout leave of

Cour, no

opening or answering brief shall exceed forty (40) pages and no reply shall exceed twenty (20)
pages, in each instance, exclusive of any tables of contents and citations." DeL. Bankr. LR 7007-

2(a)(iv).
3. The Debtors respectfully requests that the Cour grant it leave to exceed

the 20-page limit in the Reply. Union has raised several issues which merit response and the
Debtors understand that the Court expects a thorough reply brief in this matter thereby

necessitating a responsive pleading that exceeds the 20-page limit. For this reason, the Debtors

request that they be authorized to fie a reply that does not exceed 30 pages in length.

2
OOOOI-OOIIDOCS-E: I 52458. i

WHEREFORE, the Debtors respectfully request that the Court enter an order

authorizing the Debtors to exceed the twenty (20) page limit under Local Rule 7007-2 the Reply
and granting such other and further relief as the Court may deem just and proper.

Dated: Augustc1, 2009

PACHULSKI STANG ZIEHL & JONES LLP

No. 2436)

. 109084)

Robert M. Saund ar No. 226172)

James E. O'Neil (DE Bar No. 4042) 919 North Market Street, 1 th Floor P.O. Box 8705 Wilmington, DE 19899-8705
Telephone: 302/652-4100

ar No. 4184, CA Bar No. 165391)

Facsimile: 310/652-4400
Email: ljones~pszjlaw.com

ikharasch~pszjlaw.com smcfarland~pszjlaw.com rsaunders~pszjlaw.com j oneil~pszj law.com

Counsel for Debtors and Debtors in Possession.

3
OOOOI-OOIIDOCS_DE: I 52458. I

In re: )
Upon the motion (the "Motion")2 of

IN THE UNITED STATES BANKRUPTCY COURT DISTRICT OF DELA WARE

Chapter 11

PACIFIC ENERGY RESOURCES LTD., et al., i )

Case No. 09- 10785 (KJC)

Debtors. )

(Jointly Administered)
Hearing date/time: 9/1/09 at 10:00 a.m.
Related Docket Nos. 455 and 781

ORDER GRANTING DEBTORS' MOTION FOR LEAVE TO EXCEED REPLY BRIEF PAGE LIMITATION
the above-captioned debtors and debtors in

possession (the "Debtors"), for entry of an order pursuant to rule 7007-2 of the Local Rules of
Banptcy Practice and Procedure of

the United States Banptcy Court for the District of

Delaware (as amended, the "Local Rules") authorizing the Debtors to exceed the twenty (20)page limit under Local Rule 7007-2 with respect to the Debtors' Hearing Memorandum And
Reply (the "Reply") To Supplemental Objection Of Union Oil Company Of

California To

Debtors' Alternative Motion Of

Pacific Energy Alaska Operating LLC For An Order

Authorizing Abandonment of Interests In Oil And Gas Properties At Trading Bay, Alaska And

Rejection Of Executory Contracts Relating Thereto (the "Supplemental Objection"), as more

fully set forth in the Motion; and due and proper notice of the Motion having been provided; and

it appearing that no other or further notice need be provided; and the Court having determined

i The Debtors in these cases, along with the last four digits of each of

the Debtors' federal tax ientification

number, are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings, LLC (tax J.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy AYska Operating LLC

(7021); San Pedro Bay Pipeline Company (1234); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The
mailing address for all of

the Debtors is 111 W. Ocean Boulevard, Suite 1240, Long Beach, CA 90802.

2 Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Motion.

0000 1-00 1IDOCS_DE: 152458.1

that there is just cause for the relief granted herein; and upon all of

the proceedings had before

the Court and after due deliberation and sufficient cause appearing therefore, it is hereby

ORDERED that the Motion is granted; and it is fuher

ORDERED that the Debtors' Reply may exceed the 20-page limitation under

Local Rule 7007-2 but only to a maximize page length of30 pages.
Dated: August _, 2009

THE HONORABLE KEVIN J. CAREY CHIEF UNITED STATES BANKRUPTCY JUDGE

2
OOOOI-OOIIDOCS_DE: I 52458 1

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELA WARE
In re:
) ) ) ) )
Chapter 11

PACIFIC ENERGY RESOURCES LTD., et ai.1

Debtors.

Case No. 09-10785 (KJC) (Jointly Administered)

(Reference Docket Nos.)

Hearing Date: September 1, 2009 at 10:00 a.m. Eastern time

HEARING MEMORANDUM AND REPLY TO SUPPLEMENTAL OBJECTION OF UNION OIL COMPANY OF CALIFORNIA MOTION OF PACIFIC ENERGY ALASKA OPERATING LLC FOR AN ORDER AUTHORIZING ABANDONMENT OF INTERESTS IN OIL AND GAS PROPERTIES AT TRADING BAY, ALASKA AND REJECTION OF EXECUTORY CONTRACTS RELATING THERETO
TO DEBTORS' ALTERNATIVE

Pacific Energy Alaska Operating LLC ("PEAO"), one of the above-captioned debtors and debtors in possession (together with PEAO, the "Debtors"), hereby replies (the

"Reply") to the Hearing Memorandum and Supplemental Objection of Union Oil Company of

California in Opposition to the Scope o/the Alternative Motion of Pacifc Energy Alaska
Operating LLC for an Order Authorizing Abandonment of Interests in Oil And Gas Properties at

Trading Bay, Alaska and Rejection of Executory Contracts Relating Thereto (the" Objection").

No other objections have been fied to the Debtors' Alternative Motion of Pacifc Energy Alaska
Operating LLC for an Order Authorizing Abandonment of Interests in Oil And Gas Properties at

Trading Bay, Alaska and Rejection of Executory Contracts Relating Thereto fied June 16, 2009

1 The Debtors in these cases, along with the last four digits of each of the Debtors' federal tax identification number,
are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings,

LLC (tax J.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021); San Pedro Bay Pipeline Company (1234); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The mailng
address for all of

the Debtors is 111 W. Ocean Boulevard, Suite 1240, Long Beach, CA 90802.

68773-002\DOCS _ SF:67039.5

(Docket No. 455) (the "Motion"). PEAO respectfully replies to the Objection fied by Union Oil Company of California ("Union") as follows?

Introduction
1. By the Motion and assuming that the Debtors are unable to consummate a

sale of

their oil and gas interests in an area commonly referred to as "Trading Bay," PEAO

seeks, pursuant to section 365 of

the Banptcy Code, to reject certain agreements (the

"Rejected Contracts") relating to the Trading Bay Unit and the Trading Bay Field and, pursuant
to section 554 of

the Banptcy Code, to abandon certain associated assets as described in the

Motion and herein (the "Abandoned Assets"). The Rejected Contracts and Abandoned Assets
are burdensome and have no value to the estate. The Objection concerns PEAO's Motion as it
relates to the Trading Bay Unit only.
2. There is no dispute that PEAO has properly exercised its sound business

judgment in deciding to reject the Rejected Contracts and to abandon the Abandoned Assets.
The issue raised by Union is whether PEAO is proposing to abandon enough property with

respect to the Trading Bay Unit. Specifically, Union asserts that in addition to the Abandoned
Assets, PEAO must also abandon (a) certain fee interests and easements that according to Union
are tied into the Trading Bay Unit; and (b) certain "non-unitized" lease acreage outside of

the

2 Union previously fied its Limited Objection of Union Oil Company of

California to Debtors' Alternative Motion of Pacifc Energy Alaska Operating LLC for an Order Authorizing Abandonment of Interests in Oil And Gas

Properties at Trading Bay, Alaska and Rejection of Executory Contracts Relating Thereto on July 10, 2009 (Docket
No. 572) (the "Limited Objection"), in which Union objected to the Debtors' proposed abandonment of

the assets to Union. The Debtors are no longer seeking a finding by this Court at this time that the assets at issue wil be abandoned to Union. Therefore, the Limited Objection is moot.

2
68773-002\DOCS _ SF:67039.5

Trading Bay Unit that originally arose under the same oil and gas leases that are integrated into
Trading Bay Unit.
3. On both counts, Union is wrong. Union incorrectly contends that PEAO

cannot keep its fee interest and easement outside of the Trading Bay Unit if it relinquishes its
interests in TBU, because all of

the contracts that govern the TBU are integrated. The fatal flaw

in Union's position is that PEAO's rights in its fee interests and easements are not derived from

any of the Rejected Contracts or interests it seeks to abandon, but rather are based on its real

property rights in the fee interests and easements, which are completely independent from the
Rejected Contracts and abandoned interests.
4. Union correctly states that section 365 of

the Bankrptcy Code does not

authorize a debtor to reject part of a lease and keep part. However, Union incorrectly contends

that therefore PEAO cannot retain the Non-Unitized Portions ofleases and abandon or reject the Unitized Portions. Union's argument fails because PEAO is not relying on section 365 to reject
just a portion of

the leases. First, under Alaska law, oil and gas leases like the ones at issue

create interest in land than are not subject to assumption or rejection under section 365, but are subject to sale under section 363 or abandonment under section 554. Moreover, these leases have
already been subdivided with the approval of

the lessor, the State of Alaska, ("State") into

separate and distinct geographically divided interests segments (only the Unitized Portions relate

to Trading Bay Unit, as outlined fuher below). In fact, the State has expressed no objection to
PEAO's proposed abandonment of solely the Unitized Portions of

the leases that relate to

Trading Bay Unit. Alaska law allows Unitized Portions of leases to be separate property

3
68773-002\DOCS _ SF:67039.5

interests from Non-Unitized Portions and PEAO is only seeking to abandon property interests

that have already been described as separate segmented propert interests under State law, and
under section 18(f) of

the Unit Agreement.

5. It is up to PEAO to decide which assets are in its the best interests of

the

estate to abandon, not Union. Here, PEAO has determined in the exercise of its sound business
judgment to retain certain completely severable fee or real property interests because those
properties may be needed in connection with PEAO's oil and gas activities outside the Trading
Bay Unit.

Relevant Facts

A. The Relinquished Interests.

6. The Rejected Contracts at issue relating to the TBU, consist of

the

following agreements to the extent that they can be construed as executory contracts: (i) Trading

Bay Unit Agreement ("Unit Agreement"); (ii) Unit Operating Agreement-Trading Bay Unit
("TBUOA"); and (iii) the Alignment Agreement.3

7. PEAO also seeks to abandon the Abandoned Assets, which generally

include: (a) PEAO's working interests ("TBU Working Interests") in the Trading Bay Unit

("TBU") and the Trading Bay Field ("TBF"); and (b) PEAO's interest in the buildings and
related infrastructue which are par of

the Trading Bay Production Facility ("TBPF"). The TBU

is an oil and gas producing unit located offshore in Cook Inlet, Alaska near Anchorage. The TBF

is a single oil and gas lease located adjacent to TBU, but not within the unit. TBPF is a
3 The Unit Agreement and Alignment Agreement were inadvertently omitted from Exhibit A to the Motion as

agreements that PEAO intends to reject. The exhibit to the proposed form of order wil be amended to correct this omission.

4
68773 -002\DOCS _ SF:67039.5

consortium of onshore buildings, tanks, pipelines, processing facilities and other related
personal property located on the West Foreland peninsula near Cook Inlet, on real property
owned jointly by Union and PEAO. The TBPF is utilized for support of

oil and gas operations in

the TBU and TBF, and for access to other projects. The interests in the TBPF that PEAO seeks

to abandon are referred to as the "TBPF Building and Infrastructure Interests." In addition, the
Abandoned Assets include P AEO's interest in the Unitized Portions of certain leases identified

in the Motion ("Unitized Portions").

8. The dispute with Union is about what PEAO is not seeking to abandon.

PEAO intends to retain its interests in property outside of

the TBU consisting of: (a) PEAO's fee

way (the

interest in two parcels ofland (the "Fee Parcels") and related easements and rights of

"Easements") located on the West Foreland peninsula that include, or provide access to, an
airstrip, barge landing and road system that, in addition to supporting the TBU, are necessary for
PEAO's wholly-owned oil and gas operations outside of

the TBU,4 and (b) potentially

exploitable leased acreage not within the TBU (the "Non-Unitized Portions"), which are

recognized by the State as distinct and segmented property interests from the Unitized Portions

within the TBD. PEAO shares a tenant in common interest in the Fee Parcels and is a co-lessee
in one Easement (for the barge landing) with Union. Collectively, PEAO's interests in the Fee
Parcels, Easements and Non-Unitized Portions are referred to herein as the "Retained Property."
PEAO does not seek to reject as part of

the Motion an existing Facilities Agreement with Union,

4 The TBPF is located on the Fee Parcels but the Fee Parcels themselves, which are fee interests in the surface of

the land, are different propert from the TBPF, which consists ofa building and related infrastrcture.
5
68773-002\DOCS _ SF:67039.5

which delineates operational parameters for use of the airstrip, barge landing and road system for
PEAO's operations unrelated to TBU operations.
B. The Fee Parcels and Easements.
9. The Fee Parcels were originally purchased in 1967-1968 by Union and

PEAO's predecessor in interest, Marathon Oil Company ("Marathon"), with respect to

production activities completely unelated to the TBU. Indeed, the Fee Parcels are located on the
west side of Cook Inlet on the West Foreland peninsula, well outside the boundaries of

the TBU.

The Fee Parcels consist of a surface estate only with no mineral rights. The Fee Parcels are held
as a tenancy in common, with Union and PEAO sharing an equal 50% interest each (PEAO
succeeded to Marathon's 50% interest). The application to acquire the barge landing, which

consists of a lease of Alaska Tide and Submerged Lands, was submitted on April 1, 1966. The

application indicated that the land was to be used for industrial puroses "for barging and access
purposes in connection with a contiguous production facility onshore." No contemporaneous
mention was made that would suggest any limitation or exclusive use of such access for TBD.
The right-of-way permit for the northern portion of

the airstrip (ADL 220602) was made and

entered into with the State on January 1, 1994. A true copy of the right of way permit is attached

hereto as Exhibit A. By its own terms, the permit is styled RIGHT OF WAY PERMITPRIVATE NON-EXCLUSIVE and was issued solely to PEAO's predecessor-in-interest,
Marathon Oil Company, with no limitation of

use "other than the location, construction,

operation and maintenance of said right-of-way over and across the state lands."

6
68773-002\DOCS _ SF:67039.5

10. The TBPF is a production facility consisting of a building and related

infrastructure located on a portion of

the Fee Parcels. While there is no agreement in place to

authorize the use of

the facility to process non TBU production, the TBPF curently processes oil

from both TBU and the Non-Unitized TBF lease and this has always been the case.. Union's
assertion that the TBPF has somehow always been exclusively dedicated to processing the
production of

the TBU is erroneous and appears to be contrived solely to impair PEAO's rights.

11. Union has admitted in prior correspondence that the Fee Parcels were
purchased independent of

the TBU by Union and PEAO's predecessor, Marathon, without the

the other TBU members, that the cost of

approval of

the of

the acquisition was not shared with

the TBU or its other members, and that the Fee Parcels have been used for other than TBU

purposes since their acquisition. In a letter agreement (the "1973 Union Letter") on Union
letterhead and signed by Union, dated August 14, 1973, from Union and Marathon to the

"MANAGEMENT COMMITTEE TRADING BAY UNIT," the letter states:

Union Oil Company of California and Marathon Oil Company have recently obtained title to the captioned surface acreage from Union 50 percent and the State of Alaska in the proportions of
Marathon 50 percent. The subject acquisition was made without Trading Bay Unit participation. . . ."

1973 Union Letter, at 1 (emphasis added). In the 1973 Union Letter, Union and Marathon

describe their acquisition as "the Trading Bay onshore production facility site located in West

Foreland," however, they distinguish the site from the facility itself: "Notwithstanding any
provisions to the contrary contained herein, it is understood that the production facilities located
on the surface of the subject property are not subject to this agreement." Id. A true copy of

the

1973 Union Letter and Marathon's response is attached hereto collectively as Exhibit B.

7
68773-002\DOCS _ SF:67039. 5

12. The Fee Parcels and Easements that PEAO seeks to retain have supported

a variety of purposes in addition to the activities conducted at Trading Bay production facilty including access to and use of a barge landing, a right of way for Cook Inlet Pipeline Company
pipelines and buildings, a right of

way for Cook Inlet Gas Gathering System ("CIGGS")

pipeline(s), PEAO (and its predecessors-in-interest) oil and gas gathering pipelines, an airstrip to
provide personnel, fuel, and equipment for PEAO and its predecessors-in-interests nonTBU

properties, and access to other production facilties located nearby. PEAO must retain access to
and use of

the subject air strip, barge landing and road system to support PEAO's wholly-owned

oil and gas producing assets that are operated by Pacific Energy Resources, Ltd. ("PERL"),
which is one of the Debtors. Without access to and use of

its own interests in the Fee Parcels

and Easements, PERL, as operator, would be unable to "lift" or ship oil to the local refinery or
provide fuel, equipment, supplies and personnel through the barge landing and airstrip to

PEAO's wholly-owned producing properties not related to the TBU or TBPF which it and its
predecessors-in-interest have been allowed to do for more than a decade.
C. The Rejected Contracts.
13. The Unit Agreement was entered into in February, 1967 and approved by

the State. The Unit Agreement is the basic charer describing relations with the State, who

conducts operations, and allocation of revenues and expenses. The Unit Agreement provides
that the TBU is divided into separate Participating Areas, each representing a common field or

pool of petroleum resources. Revenues and expenses are calculated separately for each

Paricipating Area. Union was and has remained the operator of the Unit.

8
68773-002\DOCS _ SF:67039.5

14. Shortly after the adoption of

the Unit Agreement, the unit members

executed the TBUOA to govern internal operations of

the TBU. The Participating Areas are

referred to as Working Interest Paricipating Areas, or WIPAs, in the TBUOA.

15. In 2002 Union and Forests Oil, which at that time between them owned all

of

the interest in the TBU, entered into an Alignment Agreement. This Agreement eliminated

almost all of the separate WIP As and simplified the allocation of costs and revenues by

providing that it would be made in accordance with each owner's total ownership percentage of
the TBU, rather than separately with respect to each WIP A.
16. In 2005, Forest Oil Corporation ("Forest"), a member of

the TBU, and

PEAO's predecessor, sued Union on claims of

mismanagement of

the TBU and overcharging for

expenses, in the United States District Court in Alaska. Union moved to dismiss the claims on
the basis that that claims had been waived in the Alignment Agreement. In rejecting Union's

motion, the Cour analyzed the Alignment Agreement and concluded that it addresses only the
allocation of costs and expenses between the parties, and "nothing more." July 7, 2006 Order of

the United States District Cour for the District of Alaska Denying Defendant's Motion for
Parial Summar Judgment at Docket No. 23 and Granting Plaintiffs Motion for Partial
Summar Judgment at Docket No. 39 at p.12; July 28, 2006 Order of the United States District

Cour for the District of Alaska Denying Defendant's Motion for Reconsideration at Docket No.

91. True copies of the orders are attached hereto as Exhibits C and D.

9
68773-002\DOCS _ SF:67039.5

D. Unitized Acrea2e.
17. Oil and gas units under Alaska law are designed to integrate separate oil

and gas interests into a single "unit" to maximize efficient recovery of oil and gas resources

where individual pools or fields are overlain by separate owners of oil and gas rights. The unit
prevents the owner whose lease overlays only a part of the pool from draining the entire pool to
the detriment of the mineral rights owners in other parts of the pooL.
18. In Alaska, oil and/or gas units are established through orders of

the Oil

and Gas Conservation Commission. AS 31.05.100, 31.05.110.5 These units may be established
either with the agreement of

the affected mineral rights owners, or involuntarily. Id. Once the

unit is established, the unit operator or someone acting under the operator's authority is the sole

person entitled to operate wells within the unit. AS 31.05.110.

19. A unit does not itself hold title to any of the tracts or leases contained
within its borders - all such properties remain in the title of the owners, who are unit members.
AS 31.05.11 O(j). The same is true of the expenses of production, and of

the petroleum produced

within the unit - all the revenues and expenses are allocated among and attributed to the owners.

Id. The unit itself is thus not so much an entity as it is a consolidation of mineral interests

covering all or pary of a common source of supply. 1 Bruce M. Kramer & Patrick H. Marin,
Pooling and Unitization 6.02 (3d Ed. 1989). Another way of looking at it is as the joint

operation of all or some par of a producing reservoir. Willams & Meyers, Oil and Gas Law
901 at 1-2; Kramer & Marin, The Law of

Pooling the Unitization 6.02 at 6-9,17.01.

5 Alaska Statue ("AS").

10
68773-002\DOCS _SF: 67039.5

20. The TBU comprises an area of

Cook Inlet, an arm of

the Pacific Ocean in

south central Alaska near Anchorage. The submerged lands of Cook Inlet are owned by the

State, and the oil and gas properties contained with the TBU are offshore leaseholds. The TBU
. was established by order of

the Alaska Oil and Gas Conservation Commission in 1967, defining

the borders of

the unit and approving the Unit Agreement. Numerous State leases, held by a

variety of separate owners, were within the boundaries of the TBD. Production facilities within
the TBU now include wells with their accompanying platforms and pipelines bringing the

production out of TBD. Union is the designated operator of TBD.

21. Segregation ofleased acreage into Non-Unitized Portions and Unitized

Portions are divisions created by and approved by the State and are expressly permitted by
section 18(f) of the Unit Agreement as more fully discussed below.

An~ument

A. Union has the Burden of Proof on all Issues it has Raised in the Objection.
22. PEAO, in the exercise of its business judgment as a debtor in possession,
has determined that rejection of

the Rejected Contracts benefits the estate. Sharon Steel Corp. v.

National Fuel Gas Dist. Corp. (In re Sharon Steel), 872 F.2d 36, 39-40 (3d Cir.1989) (business

judgment test for rejection). "The trustee's power to abandon property is discretionar." In re
Slack, 290 B.R. 282, 284 (Bankr. D.N.J. 2003) (citations omitted). "Courts defer to the trustee's

judgment and place the burden on the party opposing the abandonment to prove a benefit to the
estate and an abuse of

the trustee's discretion." Id. "The part opposing the abandonment must

show some likely benefit to the estate, not mere speculation about possible scenarios in which

11
68773-002\DOCS _ SF:6 7039.5

there might be a benefit to the estate." Id. The court only needs to find the trustee made: 1) a

business judgment; 2) in good faith; 3) upon some reasonable basis; and 4) within the trustee's
scope of authority." Id.

23. PEAO has made its primafacie case for abandonment because, as
discussed in the Motion and herein, the property sought to be abandoned is of inconsequential

value and benefit to PEAO's estate. 11 U.S.C. 544(a). Union must now rebut that case with

evidence, but has not and canot do so. In re Paolella, 79 B.R. 607, 610 (Bank. E.D.Pa. 1987)
("it is the movant who must make out a prima facie case.

B. PEAO's Interests in the Fees Parcels and Easements Do Not Emanate from the Rejected Contracts. But Rather are Based on PEAO's Real Property Rie:hts as a
Tenant in Common Under Alaska Law.

24. Union and PEAO own the Fee Parcels as tenants in common and PEAO
has either sole or joint property rights in the Easements and rights of way. Under Alaska law, PEAO is free to use and convey its property interests as it sees fit. Indeed, the Alaska Supreme

Cour has recognized the "general rule" that "a tenant in common has the right to voluntarily

convey" its interest in property without the consent of co-tenants. Gabaig v. Gabaig, 717 P.2d
835,840 (Alaska 1986) (citations omitted).

25. The Alaska Supreme Cour has also noted that with respect to co-owners
of a mining claim, the co-owners "stand in a relation of mutual trust and confidence to each

other. No co-owner wil be permitted to act hostilely toward another in regard to their common
property, and any distinct title acquired by one wil inure to the benefit of alL." Miscovich v.

12
68773-002\DOCS _ SF:67039.5

Tryck, 875 P.2d 1293, 1303 (Alaska 1994). Tenants in common in Alaska have a fiduciary duty
with respect to one another in their use of

the entire property.

26. Alaska follows the general rule that each tenant in a tenancy in common

has the right to use and enjoy the property, or else be compensated. See Wood v. Collns,

812

P.2d 951,958 (Alaska 1991).

27. PEAO, as cotenant of

the real property underlying the TBPF, has the right

to use and convey that property, or alternatively, to retain it.

28. Union's contention, at paragraph 18 of

the Objection, which states that

working interest ownership in the TBU and may not be

"all rights in the TBPF are an incident of

retained by a non-working interest holder" under section 10.2(c) ofthe TBUOA, is based on a
fatally flawed assumption, namely that the interests that PEAO seeks to retain are derived from
the TBUOA. PEAO's rejection of the TBUOA, and resulting relinquishment of

rights under the

TBUOA, including its BPI and WIP A, has no impact on its rights in the Fee Parcels, Easements
or Non-Unitized Portions of

the leases. First, the TBPF Building and Infrastructure Interests are

being abandoned along with the TBU Working Interests. PEAO is only retaining the Fee Parcels
and Easements, which are not par of

the TBU and not governed by the TBUOA. Second,

which

Article 10.2(c) of

the TBUOA, relied upon by Union only apples to property, "the cost of

is chargeable as Costs and which are acquired in connection with the development and operation
of

that WIPA." As Union has acknowledged in the 1973 Union Letter, the Fee Parcels PEAO

seeks to retain were not acquired in connection with the TBU or any WIP A within the TBU and

therefore Aricle 10.2 (c) is inapposite to the Fee Parcels. Likewise the Easements were not

13
68773-002\DOCS _ SF:67039. 5

acquired for TBU purposes. At the risk of stating the obvious, the Non-Unitized Portions were
never part of

the TBU and were not acquired in connection with the TBU or any WIPA. See

discussion below at section D.l.

29. Union's claim that the TBUOA establishes that the TBPF is controlled by

the TBU is undercut by the fact that the Trading Bay Field Joint Operating Agreement also includes the same kind of language regarding its facilities and reciting that it is a covenant
,

running with the "covered" interests. Union signed that agreement as well. Thus Union's
argument leads to the conclusion that the TBPF was intended to be property under the TBU, but

yet also property under the Trading Bay Field, at the same time. Union cannot have it both
ways.
30. Union's contention that the Alignment Agreement treats the TBPF as a

Unit asset is a gross mischaracterization of

that agreement. The Alignment Agreement merely

aligns the parties working interests relative to production and costs relating to the TBU, TBF and
TBPF. Alignment Agreement, recital 3. According to the U.S. District Court's analysis of

this

Agreement, the paries wanted to eliminate the accounting confusion that arose in the prior

arrangement where costs would have to be allocated separately to each WIP A. The Alignment

Agreement's sole purpose, the court found, is allcation of costs and production and nothing

more - it has, therefore, no impact on ownership ofreal property interests in the West Foreland
peninsula that PEAO seeks to retain.

31. Therefore, PEAO may retain and use the Fee Parcels and Easements
without having to forfeit them to Union in conjunction with rejecting the Rejected Contracts.

14
68773-002\DOCS _ SF:67039.5

Union's arguments in this regard fail because PEAO's ownership and use rights emanate from

title documents and Alaska law, not the Rejected Contracts.

C. PEAO's Proposed Abandonment of Interests in the Unitized Portions does not

Violate Section 365 of the Bankruptcy Code.

i. PEAO May Abandon the Unitized Portions While Retaining its Separate and
Severable Interests in the Non-Unitized Portions.
32. In the Motion, PEAO seeks to abandon portions of certain oil and gas

leases with the State that lie within the borders ofthe TBU (Unitized Portions), while retaining

those portions that lie outside the unit (Non-Unitized Portions). A trustee or debtor in possession
may abandon property that is severable under state law. See Van Curren v. Great Am. Ins. Co.

(In re Hat), 363 B.R. 123, 140-41 (Ban. E.D. CaL. 2007).
33. Union argues (in Section B of its Objection) that under section 365 of

the

Bankptcy Code, PEAO is not entitled to reject only a portion of

the leases but must reject or

assume each entire lease. However, PEAO is not relying on section 365 to reject the leases or
portions thereof. The Unitized and Non-Unitized Portions of

the leases that are relevant here are

already segregated interests in real property by contract and pursuant to Alaska law which allows

ownership of divided interests in oil and gas leases. Union ignores the fact that these leases
already have divided ownership, and that the State, as lessor, has already approved the
geographic division of the leases with separate ownership of

the portions inside the unit from the the Unit Agreement that expressly
the leases.

portions outside the unit. Union also ignores the provisions of

separate the Unitized from the Non-Unitized Portions of

15
68773-002\DOCS _ SF:67039.5

34. State regulations specifically provide for divided interests in oil and gas

leases, and for separate assignment of such divided interest in a geographical portion of a lease,
if approved by the Commissioner of

Natural Resources. 11 AAC 82.605( d); 11 AAC 82.610.

Therefore, PEAO is entitled to assign its interest in the Non-Unitized Portions (without assigning
the Unitized Portions) outside of this bankptcy, without relying on sections 365 or 554 of

the

Banptcy Code.
35. In fact, the separate assignment of

the Non-Unitized Portions, the portions

PEAO seeks to retain, has already occurred. For example, Lease ADL 17602 is a lease issued by

the State in 1962, originally to Pan American Petroleum Corporation as lessee. Paragraph 31 of
the lease provides that either undivided interests, or geographically divided interests, in the lease
may be assigned with the approval of the lessor. All of

the leases are on substantially identical

forms and contain this provision. In 1998, the state approved the assignment by successor lessee
Union Oil of 70% of that portion of

the lease lying outside the TBU to PEAO's predecessor,

Forcenergy, Inc. It is that separate 70% which PEAO now seeks to retain (PEAO owns a
different percentage, 46.8%, of

the leased acreage that is within the TBU).

the Non-Unitized Portions of every one of

36. Separate assignment of

the

leases in question has already been accomplished and approved by the State. PEOA wil
introduce evidence of the other assignments of the Non-Unitized Portions of

the leases and the

State's approval thereof at the hearing on the Motion. It is these separate and distinct divided
interests, arising through separate instruments of assignment, and approved separately by the
State, that PEAO seeks to retain.

16
68773-002\DOCS _ SF:67039.5

37. Section 18(f) of

the Unit Agreement, which by statute has been approved

the State having only

by the State (AS 31.05.110(b)), provides that" any lease embracing land of

a portion of its lands committed hereto, shall be segregated as to the portion committed and the

portion not committed. "Section 18(f) goes on to say "any State lease having production in
paying quantities, as defined in this agreement, on said lease prior to commitment to this

agreement shall not be segregated. The Non-Unitized Portions shall not participate in the unit
area but shall be extended by virtue of the production on the Unitized Portions as so long as it
produces in paying quantities." Thus, the Unit Agreement itself effects a separation of

the
the

Unitized from the Non-Unitized Portions of

the leases, and provides that the provisions of

leases "shall apply separately" to the portions within the TBU.

38. The current status of the Non-Unitized Portions of

the leases is, thus,

under Alaska law and by agreement of

the parties, that these Non-Unitized Portions are separate

property interests from the Unitized Portions, and can be separately held, assigned, or retained.
II. Section 365 does not apply the Non-Unitized Portions of the Leases.

39. Whether an oil and gas lease is an unexpired lease for purposes of section
365 of

the Banptcy Code depends on whether state law characterizes the underlying interest

subject to the lease as an interest in land. Where, as is the case in Alaska, an oil and gas lease

transfers an interest in land, Section 365 does not apply. As one commentator has sumarized:
To decide whether an oil and gas lease is an executory contract or an unexpired lease that is subject to assumption or rejection under section 365, one must examine applicable state law and determine what interest the lease creates thereunder. In states where an oil and gas lease transfers a legally cognizable interest in land, section

17
68773-002\DOCS _ SF:67039.5

365 does not apply to oil and gas leases. 6

On the other hand, in states where an oil and gas lease merely transfers the exclusive right to search for and produce oil and gas from the property, but conveys no fee interest, the lease might be subject to rejection under section 365.

T. Davis and M. Gregory, How to Prepare for and Surive a Producer's Bankptcy Filng: What
You Don't Know Can Hurt You, Rocky Mountain Mineral Law Institute, 16.06(4)(a) (1998)
(emphasis added) (available on Westlaw at 44 RMMLF-INST 16).

40. Union acknowledges that oil and gas leases are not considered "a lease or
other form of executory contract," citing Terry Oilfeld Supply Co. v. American Security Bank,
NA., 195 B.R., 66, 70 (S.D. Tex. 1996) ("A mineral

lease in Texas... is not a lease or other

form of executory contract that a debtor may accept or reject."). Objection, at ii 21 n.8.

41. The United States Bankuptcy Court for the District of Alaska has

determined that the lessee's interest under an Alaska oil and gas lease is an "interest in land"
under Alaska law:

Although there are no reported cases indicating how a lessee's interests in a state oil and gas lease would be classified in Alaska, the Alaska Statutes reflect that the two WMRU leases which (the debtor) SPC acquired in 1989 are interests in land. See, e.g., AS 38.05.035(10)(e) (director ofDNR may approve contracts for the sale, lease or other disposal of available state public lands) AS 38.05.135 (state land containing valuable mineral deposits may be made available via permit or lease for the purose of exploration, minerals) AS 38.05.180 (regarding development and extraction of the WMRU oil and gas leases of state land). Furher, the terms of leases, which were given by the state, specify that "the rights granted to the lessee by this lease constitute an interest in real
property in the leased area." SPC's interest in the WMR U leases constitutes an interest in land.

6 Citing to River Prod Co. v. Webb (In re Topco, Inc.), 894 F.2d 727, 739 n. 1 7 (5th Cir. 1990) (applying Texas

law); In re Heston Oil Co., 69 B.R. 34 (N.D. Okla. 1986) (applying Oklahoma law); In re Hanson Oil Co., 97 B.R. 468 (Bank. S.D. II 1989) (applying Ilinois law).
18
68773-002\DOCS _ SF:67039.5

Aleut Corp. v. Stewart Petroleum Co. (In re Stewart Petroleum Co.), 5 ABR 376, 389 (Ban. D.
Alaska Apr. 20, 1998) (brackets in original; emphasis added; citation omitted) (available at the

Banptcy Cour's web site at http://ww.akb.uscours.gov/5abr376.htm). The Alaska

Supreme Court has held that possessory, non-exclusive rights in land granted by the State, such
as a mineral

lease, are rights in land. See, Northern Alaska Environmental Center v. State, 2

P.3d 629,635 (Alaska 2000).

42. This is the law in other states as welL. River Prod Co. v. Webb (In re

Topco, Inc.), 894 F.2d 727, 740 (5th Cir. 1990) ("These leases do not grant title to the oil and gas itself, but grant the right to enter the land and reduce the oil and gas to the lessee's possession.
This grant in effect constitutes a sale of part of

the land. Therefore, under Texas law, Section

365 does not govern their disposition."

43. Paragraph 37 of

the leases at issue expressly states that the rights received

by the "lessee shall constitute and interest in real property in said land". See, e.g., section 37 of
the State of Alaska Department of Natural Resources Division of

Lands Competitive Oil and Gas

Lease, Lease No. ADL 18730, dated Oct. 1, 1962, between the State and Union and The Ohio
Oil Company for Tract S-13-5-58." A true copy of

Lease No. ADL 18730 is attached hereto as

Exhibit E.

44. Here, Alaska transferred a real property interest to the lessees, and divided
the relevant acreage for each relevant lease into a Non-Unitized Portions and Unitized Portions.
The leases transferred an interest in land to the lessees. PEAO, as one of

the lessees may now

19
68773-002\DOCS _ SF:6 7039.5

dispose of

the land by abandonment under section 544 of

the Banptcy Code, and section 365

of the Bankptcy Code does not govern the disposition requested by the Motion.
iii. Abandonment of the Unitized Portions Would Not Cause the Non-Unitized

Portions to Terminate.

45. Union argues that ifthe Unitized Portions are abandoned, the NonUnitized Portions would terminate for lack of production. This argument fails for at least three
separate reasons.

46. First, Union itself as well as PEAO are currently making "delay rental"

payments to the state regarding both the Unitized and Non-Unitized Portions of

the leases.

These delay rental payments maintain the Unitized and Non-Unitized Portions of

the leases and

suffice to keep the leases in effect - thus there wil be no termination of the Unitized Portions of
the leases that are abandoned by PEAO.
47. Second, the relief that PEAO is seeking is not to split the leases into two

different leases - it is merely to abandon its interest in one currently segmented Unitized Portion
of

the leases, and retain its separate interest in the other Non-Unitized Portions. This

segmentation of the leases has already occurred. The State of Alaska approved the segmentation

of the leases in 1967 when the Unit Agreement callng for segregation of the lease portions was approved. The division certainly had occurred by 1998, when the State approved a separate
assignment of what is now PEAO's separate interest in the Non-Unitized portions of

the leases

yet obviously no part of

the divided leases have been terminated. If

there were to be any

termination, it would have occurred years ago.

20
68773-002\DOCS _ SF:67039. 5

48. Finally, PEAO is not the sole owner of

the interest of either the Unitized

Portions or the Non-Unitized Portions of

these leases. Union itself owns working interests in

the leases. Its ownership of both portions of

both the Unitized and Non-Unitized Portions of

the

leases should, by its own logic, suffice to prevent any termination even if its arguments had any
merit, which they do not.
D. The Motion Does Not Violate Covenants Runnin2 With the Land.
49. Union contends that by keeping the Retained Property, PEAO wil violate

Article 16.3 of

the TBUOA which Union contends is a covenant running with the Fee Parcels

and Easements. Union, as the pary seeking the benefit of

the covenant at issue, has the burden of

proving that each covenant runs with the land.7 Union has not and cannot meet its burden.
i. The Covenants at Issue Do Not Run With the Land.
50. In its Objection, Union tries to tack the TBUOA onto PEAO's real

property interests in the West Foreland property underlying the onshore production facilities.

Union's argument goes too far. The TBUOA makes reference to generic "production facilities"
and purports to govern those facilities through the provisions of

the TBUOA. No specific

reference is made to the West Foreland onshore facility site. There is only a boilerplate clause
stating that the provisions of

the TBUOA "shall be covenants running with the lands, leases and

7 Shaffv. Leyland, 154 N.H 495, 499, 914 A.2d 1240, 1245 (NH 2006) ("the burden of covenants running with the land is upon the part claiming the benefit of

showing that they constitute

the restriction."), quoting Stegall v.

Housing Authority, 278 N.C. 95, 100, 178 S.E.2d 824, 829 (NC 1971); Waikiki Malia Hotel, Inc. v. Kinkai
Properties Ltd. Partnership, 75 Haw. 370, 384, 862 P.2d 1048, 1057 (Haw. 1993); Cheatham v. Taylor, 148 Va. 26, 41,138 S.E. 545, 549 (Va. 1927); Mosely v. Bishop, 470N.E.2d 773, 777 (Ind. Ct. App. 1984); Charpingv. J.P.

Scurry & Co., Inc., 296 S.C. 312, 314, 372 S.E.2d 120, 121 (SC Ct. App.1988).
21
68773-002\DOCS _ SF:67039.5

interests covered thereby, and shall be binding upon and inure to the benefit of the legal

representatives, successors and assigns of the Paries hereto." TBUOA, Article 31.4.
51. Union contends that this clause means that all propert in any way

associated with the TBU in which PEAO has any interest is burdened by the TBUOA. However,
in the context of oil and gas units:

(A) provision declaring that all covenants contained in the contract are real covenants that touch and concern the affected estates is not likewise have to determine binding on a court that wil independently whether the agreement otherwise contains the minimum requirements for the creation and enforcement of real
covenants ... (p )rovisions that attempt to make legal conclusions, rather than provisions that describe the nature of the relationship

between the parties, may not be effective means of achieving the

desired result. 8

52. Thus, Union must show that the TBUOA actually binds the production

facility properties by satisfying the test for covenants running with the land. In order for a
covenant to run with the land, three general requirements must be met: (1) the covenant must

"touch and concern" the land; (2) the original covenanting parties must intend the covenant to
run; and (3) there must be some form of privity of estate. 9 Here, the last two requirements are
not met.
53. First, there is no connection between the TBUOA and the West Foreland

property so as to permit the covenants contained in the TBUOA to burden the real property.
Contrary to Union's argument, the TBU itself and the paries' real property canot be conflated
for the purposes of

the parties' respective proprietary interests. Under AS 31.05.1100), the TBU

does not own any propert, including the facilities, but rather only has the right to use, possess,
8 Kramer & Marin, The Law of Pooling and Unitization 19.01(3) at 19-43. A tre copy of

relevant portions are

attached hereto as Exhibit F.

9

Powell on Real Property 73(1) at 60-37.

22
68773-002\DOCS _ SF:67039.5

and manage the propert within the unit for the benefit of the its owners. All real property is
owned by the respective lessees, not the Unit. 10 Neither PEAO's Fee Parcels nor Easements are

included in the definition of "tract" or "Working Interest" or any other property interest
described in the TBUOA.
54. The Fee Parcel ADL 37596 at issue was conveyed from the State to

Marathon several years after the TBUOA was executed. Neither Unocal, in its role as TBU

Operator, nor the TBU were even within PEAO's chain oftitle with respect to this property
(indeed, as explained above, the TBU cannot "own" property). i I It is further undisputed that
neither of the two Fee Parcels at issue are within the boundaries of

the TBU or the leases

contained therein. Accordingly, under the current Restatement view, the covenants that apply to
the TBU (through the TBUOA) cannot run to the unconnected Fee Parcels. 12
55. Second, and even more crucially, the parties did not intend for the

TBUOA to burden these properties. The intention requirement for covenants running with the
land "focuses on the subjective state of mind of

the original covenanting parties." 13 This is also

the case under Alaska law. 14 Furhermore, the subsequent conduct of

the contracting parties is

probative in determining the intent and meaning of an agreement under Alaska law.15

10 See id.

11 See Powell on Real Property 673(2) at 60-57 - 60-58 ("'privity of estate' describes common interests in land
burdened or benefited by a covenant").

12 Cf Restatement (3d) of Property: Servitudes 2.5 ("an attempt to create a servitude on land owned by another is

not effective, absent facts sufficient to establish prescription"); 5.2, cmt. "e" ("A person cannot imposed servitude burdens on propert owned by another"). 13 Powell on Real Property 673(2) at 60-49. 14 Hurst v. Victoria Park Subdivision Addition No. J Homeowners' Ass'n, 59 P.3d 275, 278 (Alaska 2002) (citations
omitted).
15 Sowinski v. Walker, 198 P.3d 1134, 1143-1144 (Alaska 2008).

23
68773-002\DOCS _ SF:6 7039.5

56. Here, numerous documents attest to the fact that the West Foreland
property was not purchased on behalf of

the TBU. For instance, the 1973 Union Letter (Exhibit

the West Foreland property - states in relevant

B hereto) contemporaneous with the purchase of

part that "(t)he subject acquisition was made without Trading Bay Unit paricipation in order to
service both the Trading Bay Field and the McArthur River Field." (emphasis added).
Additionally, the conveyance documents (including the quitclaim deed, etc.) and related
correspondence between Marathon and Unocal consistently refer to the purchase of interests in

the property by the two companies, but never reference the property purchase in conjunction
with the TBU working interests.
57. These documents evidence Union's intent not to burden the real property

with the TBUOA, and so the TBUOA canot be construed so as to burden the Fee Parcel
property as covenants running with the land. The Alaska Supreme Cour has explained that:
Once the intentions of the paries to the covenant are known, their intention serves to limit the scope and effect of the restriction.
Because restrictions are in derogation of

the common law, they

should not be extended by implication, and doubts should be

resolved in favor ofthe free use ofland. 16

58. Further, to the best ofPEAO's knowledge the TBUOA - as an instrument

containing the covenants alleged by Union as to the TBU - has never been recorded against the
real property underlying the TBPF so as to put successors-in-interest on notice as to the alleged
covenants running with the land. i 7 This is further evidence that the TBUOA does not apply to

16 Hurst, 59 P.3d at 278 (citing, respectively, 20 Am. Jur. 2d Covenants, Conditions, and Restrictions 171;
Lamoreux v. Langlotz, 757 P.2d 584, 587 (Alaska 1988); Kalenka v. Taylor, 896 P.2d 222, 226 (Alaska 1995); Lenhoffv. Birch Bay Real Estate, Inc., 587 P.2d 1087, 1089 (Wash. App. 1978)). 17 See AS 40.17.080 (recorded document is constrctive notice of the document to subsequent the contents of
purchasers and holders ofa security interest in the same propert or a par of

the propert).

24
68773-002\DOCS _ SF:67039.5

the Fee Parcels, Easements or rights of

way located onshore approximately five miles from the

closest boundary of

the TBU.
59. Finally, even aside from the extrinsic evidence, the TBUOA and the

amendments thereto provide all the evidence that is needed to find that its provisions do not run

with the Fee Parcel property. The TBUOA was recorded in August 1967. The Fee Parcel
property was not acquired from the State until

1974. The TBUOA was amended numerous times

after 1974 - yet none of

these amendments mention the Fee Parcel property, let alone purort to
the TBUOA.

bind that property under the provisions of

60. The non-applicability of

the TBUOA to the Fee Parcel property makes

sense on a practical level as well. An oil and gas unit is formed in order to efficiently capture the

resources in a single reservoir where multiple paries have leasehold or proprietary rights to the
reservoir.18 Under Alaska law, "(a) unit must encompass the minimum area required to include

all or par of one or more oil or gas reservoirs, or all or par of one or more potential hydrocarbon
accumulations.,,19 Thus the Unit extends only to the hydrocarbon supply itself. The Court
cannot imply an intent to extend the provisions of

the TBUOA to an entirely separate non-

hydrocarbon storing property. To do so would essentially allow the concept of unitization to be

carried far beyond its specific and limited purose.

61. In sum, accepting Union's argument requires the Court to accept that the

TBUOA was intended to apply to the TBPF, and then to make the inferential

leap that through

these production facilities the TBUOA was intended to burden the underlying land - even though
18 Wiliams & Meyers, Oil and Gas Law 901 at 1-2; Kramer & Martin, The Law of 6.02 at 6-9, 17.01. A tre copy of

Pooling and Unitization

relevant portions is attached hereto as Exhibit G. 19 Alaska Administrative Code ("AAC"). II AAC 83.356(a).

25
68773-002\DOCS _ SF:67039. 5

by statute the land does not belong to the TBU, Union and Marathon had no privity of

interest

with respect to the land, and Union (by its own admission) had no intention to bring the land.
within the puriew of

the TBU. Because covenants on land are strictly construed under Alaska

law, the Cour must reject Union's creative efforts to burden PEAO's Fee Parcels, Easements
and right-of

way properties with the TBUOA.

ii. Even if the Covenant Runs With the Land, the Relief Sought by the Motion

Does Not Violate the Covenant.

62. Even if

the TBUOA was found to burden the Fee Parcels, the actual effect

on this property is nominal or non-existent. Under Alaska law, covenants should be construed
narrowly and any doubt resolved in favor of the free use of

the land. Hurst v. Victoria Park

Subdivision Addition No. 1 Homeowners' Ass 'n, supra.

63. According to Union the portion of

the TBUOA that affects what an owner

the TBUOA, is subsection

may do with its property, where that property is within the scope of

16.3, which provides:

No well, platform, or production facility (including a pipeline)

shall be used for other than that upon which ownership thereof

is

based without the approval of the Paries owning such well, platform, or production facility, as provided in Subsection 5.3D. Upon such use, a fair and equitable apportionment of risks and liabilities, investments, and operating and other costs shall be made
between the Parties, therefore. Such use shall include but not be
the production, transportation and handling of

limited to the Driling of Wells, multiple completion of wells and Unitized Substances.
language of

64. Union disregards the actual

the quoted aricle and instead

replaces "that upon which ownership thereof is based" in this subsection with the bracketed
"(TBU purposes)" in purporting to quote this provision for the Cour in its Objection at ir 31. In

26
68773-002\DOCS _SF: 67039.5

fact "ownership thereof' is based on the intent of the owners of the property to use it for a
variety of

purposes, many having nothing to do with the TBU. The unit itself, under Alaska law,
the TBlJOA can only be

can have no ownership interest in this property, so this provision of

referring, as to the Fee Parcels, to its actual owners, who are today Union and PEAO. PEAO's
contemplated use (or that of its assignee) of

the Fee Parcels for other than TBU purposes is

.

therefore not in violation of

the TBUOA even if

the Fee Parcels (which are real property surface

estates) were considered to be "production facilities" for TBUOA purposes, which they are not.
65. But even if "that upon which ownership thereof is based" is read, contrary

to the express contemporaneous intention of the parties and the forty year history of use, to mean only "TBU purposes," the abandonment requested by the PEAO would not violate the TBUOA.
66. The mechanism specified in section 16.3 for allowing non- TBU uses is
that provided for in subsection 5.3D of

the TBUOA. That subsection sets out the method for

approving the use of production facilties. The only parties entitled to vote are the parties
owning the facility in question under section 16.3. If section 16.3 applied to the owners of the
Fee Parcels, such section would limit the vote to Union and PEAO.
67. Under subsection 5.3D of

the TBUOA, any pary holding more than 15%

of the voting power cannot defeat the proposal without the support of another pary entitled to vote. Thus, Union could not defeat any fair and equitable proposal by PEAO to use the Fee
Parcels. Therefore, under the express terms of

the TBUOA the only restriction on PEAO's use

of any applicable propert is that it be fair and equitable. As discussed above, under the
common law in Alaska, as a cotenant, PEAO is under a duty irrespective of

the TBUOA to

27
68773-002\DOCS _ SF:6 7039.5

ensure that its use of property is fair and equitable. Thus, the TBUOA imposes no burdens on
this property that are not already present simply as a result of the tenancy in common ownership
of

the property by PEAO and Union.

II. The Covenants are Avoidable.

68. In its Objection, Union fails to even allege that that it recorded the
Rejected Contracts in the title records of

the Fee Parcels and the Easements. PEAO in fact

i

believes that they were not recorded in a way that they would be found in a title search of

the Fee

Parcels and Easements and it is Union's burden to establish that they were. Logically, no title
searcher would find the Rejected Contracts recorded upon these properties because, among other things the Rejeted Contracts pertain to the TBU and the Fee Parcels and Easements are not
within the TBU. Even if

the covenants applied to the Fee Parcels, unrecorded restrictive

covenants are subject to avoidance by PEAO as debtor in possession. 11 U.S.C. 544(a)(3).

69. Therefore, the covenants do not preclude rejection of

the Rejected

Contracts or burden the Fee Parcels or the Easements.

E. PEAO is not Required to Reject the Facilties Ae:reement and is not Seekine: to
Assie:n it bv the Motion.
70. PEAO is rejecting, in their entirety, all three Rejected Contracts, which are

arguably interdependent contracts. Union suggests that the Facilties Agreement must be
rejected along with the Rejected Contracts because it is inextricably intertwined with them.
71. This argument is a red herring because whether the Facilities Agreement is

rejected or not, Union can terminate it upon 30 days' notice. Facilities Agreement, 10.

28
68773-002\DOCS _ SF:6 7039.5

72. Moreover, the Facilities Agreement is not integrated with the Rejected
Contracts. In re Karfakis, 162 B.R. 719, 725 (Bank. E.D. Pa. 1993) (intent of

parties is primary

inquiry in determining whether contracts are separate or inseparable; factors for finding that

lease and franchise agreement were "inextricably interwoven" were that they were executed on

the same date, were coterminous, had the same paries, had cross-defaults and "one agreement is
of no utility without the other").
73. First, the Facilities Agreement was not executed at the same time as the

other agreements - it was signed 35 years after the Unit Agreement and TBUOA and five

months after the Alignment Agreement. Second, it is not co-terminus with the other agreements
- the Facilities Agreement, as amended, pursuant to section 10, terminates by its terms on
April 15, 20 i 1, subject to extension for five years, and critically is terminable without cause

upon 30 days notice by either party, while the Unit Agreement, TBUOA and Alignment

Agreement are expected to remain in existence as long as the TBU is productive. See Unit

Agreement 20; TBUOA Aricle 29.2. Third, the Facilities Agreement does not have the same
paries as the Unit Agreement and TBUOA. Fourth, it does not address the same subject matter
- Recital A of

the Facilities Agreement says it addresses "purposes unelated to TBU

operations." Fifth, it is not cross-defaulted to any other agreement and does not rely on the Unit
Agreement, the TBUOA or the Alignment Agreement for its operative terms.

74. The Motion does not ask this Court to approve any assignments; it is an
abandonment and rejection motion. Union's contention that the Facilities Agreement may not be
assumed because it may not be assigned is irrelevant here.

29
68773-002\DOCS _ SF:67039.5

Conclusion
75. For the foregoing reasons, the Motion should be granted in full and the

Objection should be overrled.

Dated: Augustd! 2009

PACHULSKI STANG ZIEHL & JONES LLP

1F3(o~8
o. 109084)

Kenneth H. ro CA No.1 00396) Maxim B. Litvak (CA Bar No. 215852) Robert M. Saunders (CA Bar No. 226172) James E. O'Neil (DE Bar No. 4042) 919 North Market Street, 1 ih Floor
Wilmington, Delaware 19801

Telephone: (302) 652-4100 Facsimile: (302) 652-4400

E-mail: ikharasch~pszjlaw.com
joneil~pszj law.com

kbrown~pszjlaw.com mlitvak~pszjlaw.com rsaunders~pszyjlaw.xom

Counsel for Debtors and Debtors in Possession

30
68773-002\DOCS _ SF:6 7039.5

."

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~~~~ iWW ~~m~~

DEPARTMNT OF NATU REOURCE.
March 12, 1998
DIVISION OF LAND SOUTHCENTRAL REG/ON
/
i

A.O(~. . .. .VWL..~. GOVERNOR . J -lJjl,I)OQ

OODCj
36Ut c STEE suir 108

.COCO 7

ANCHOE, AL 9955937

. t\ rn ~ rn..\!j tit\f~!
~. ti. ,;',1) I Q .10.33. . \\\..1 \\ \\

Mr. J. BrckRiddle, Senior Landman

Marathon Oil Company P;Q, Hox 196168 J\chtage, ska 99519-6168

.~.... .-..-_...::.:.:-.....~ . .-

.~~ONm.

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Re: Assignent Dated Deceinber 30, 1996 ii theTiadIg By"Area .

Between Marthon Oil Company, as Seller and

Forcenergy, Inc., as Purchaser

1

D~ar Mr. Riddle;

your letter dated July 25, 1997 (see atthed), you informed us of an Assigmnent dated Deceinl:r 30, 1996, by which Marthon Oil Company a.ssi:g~ed theidnterest in certain
By

1
.1 !

pr',pertes to FOfcenergy. Inc.. To transfer yout interest the Rights of Way and Tideland
FOrCfiergy, Inc., assignients on our offcialy approved fonns inust be

casefile.

Lease '(fn state owned. pr6pe.r listed on lms Asigi1ilt dated Dece1l?er 30~ 1996 to executed for each
I

I have enclosed .our Assignment ofRight-of- Way form to. assign your casefiles to Forcenergy, Inc. The other casefIles wil be

interest 'in thee o.f the

The enclosed form wil assign your interest n the Right-of-Way Permts for the Tradig Bay
Outfal Line, ADL No. 224467; and

addressed in a separate Ietter to you.

Production Airstrp, ADL No. 220-602; the Trading Bay Production Facilty Submarine
the Steelhead Platform Pipelie, ADL No. 221085~

Please coniplete the form according to the attched instrctions and forward thee copies of
each form with original, notazed signatus to tls offce.
To approve the assignments, we:also requi

i. Miutes frODl the:companes involved or corporate resolutions regardig the

trsfer and acquisition of thecasefies and authorig an agent/officer to sign

. on behal of the corporation;

2. A $200.00 fig fee for each casefie;

Please cal me fyou have any questions at 907-269-8553.

Sincerely,
'0uo. y"V ~ ~i..,Deborah Heebner .
Natura Resource Offcer

n.L ( IJ It

1O-16LH

EXHIBIT A

u'" IJ (.;) I i~ IJ(; J 6 0

STATE OF ALKA DEPARTMNT OF NATU RESOURCES DIVSION OF LA

P. O. BOX 107005

A ;G(p/ () D()O~

ANCHORAGE, ALKA 99510-7005

ADL NO. 220602

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....-

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;
,
f~'

.n
,

RIGHT-OF-WAY PERMIT

PRIVATE NON-EXCLUSIV

.;.,;.;..
;
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....~ ....'

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THIS AGREEMENT made and entered int.o this. 4day of 192:hyand between the STATE OF ALIV, acting by and through the Depart of Natural. sourcs; Division
of Land hereinafer referred to. as thegiattor and Marathon Oil Company, whose a dress is P. O~ Box
196168,

Anchorage, Alaska 99.519, hereinafer refei-ed to as the permittee.

WITNSSETH, that in accordance with the .provIsions of AS 38.05.850, .and the rules

regulations proinulgated thereimder, the perm.tteehavng med a;ii application fo.r a right,of-way withi the and

Anchorage Reeordg; bistnct Jor an aistrp with the Division of Land together with a map showig the
defini te location thereon of the nght-of-way which the periitteehas adopted

and definte locationt1f the. afo.resaid right-f.way,and

and agrees to be the specific

WHREAS~ it is unerst:d lld agr.e.E~d,by.thp'~rmittee herein that, as acondtioilto the graItin~

of the rlght-of~way 'applied for, theJand "Coveted by said. ijght~()f~way shal be uSd for no

purpose' following the location, constructiGn, operation and maitenance of said right-or-way Over and acros~s the other than
described state lands, to wit~ located withi S% S:eton 32, TOwiship9 North; Rage 14 Meridian, Alaska run~g 1a20 feet in leng:h anlr containg 12.10 acres, more

a width of approxiately 400 feet.

TO HAVE AN TO SOLD the same. fora period of purpose

West, Seward or less and shall extend

and subject toconditiQUS and tservatons els.ewhere set forth herein.

twenty (20) years for- the above mentioned

Theanliual rental.fee for thi right-of-way p-ermit is $1,200.00 ($100~00 per acre per year). This

renta ree shall be subject ioadjUstment ~ttery five (5) y~ar.

The legal description labeled

way granted herein shall be attached hereto and made a part hereof. .

Exhbit "A" and

sketch map labeled Exhibit "B" revealing the right-of-

In the event that the right-of-way granted shal in any manner conflct with or overlap a previously
with the peaceful use and enjoyment of the previously issued right-of-way and no improvements shall be

granted right-or-way the permittee herein shal use this right-or-way in such a manner as not to interfere

constructed by the permittee herein upon the overlapping area uness the consent therefore has first been
obtaned from the permittee under the pre-existig right-or-way.
Thepermttee in the e:ierdse orthe.rights and privieges granted by this and all other comply with all regUlations ilow in effect or as hereafer established by the Division of Landindenture shallfederal, state.

or local laws, reguations or ordiances applicable to the area herein granted.

BK 0 2 5 -l L~ PG 5 6 I

Right-of-Way Permit ADL 220602 .

Page 2 of 4

Up.on abandonment, termination, revcation or cancellation of this .indenture, the permittee shall within 90 (ninety) days remove all structures and improvements from the area herei:igranted,exc~pt those owned by the gra.ntor and shall restore the area t the sme or simar condition as the same was upon the issuance of this permt. Should thep.ermittee fail or refuse to reIIve. sd strctures or improvements, within the tine allotted; theshal revert t and become the permittee shaUnt bitelieved of

properly f thegranto:r; Howeve:r, the

restoring the area. Provided further, however, that thegraior,inhis w;SCi:etQil,mayalter or DlOdl the requirements contained in tms provsion: if it is in the, bst interestot The Steof Alaska to do so. ..

the cost fthe removal of.11e strct:iesj imprvements and\or cst of

The permttee shall utilze the 1ands .liere'lni'a.tited co~sitentwith thepuxpSes of 'the .proposed

use, as re'Valed by th ap'piicatin therefor, aid 'sIiall nttai the:premises In:a neat and orderly maner

the use to which the land is subjected. .

and shall adopt and applystichsafety nieasuresas shal be :iecessar,ptoper and The permittee shal take all reasonable precaution to .No materalshall be disposedfby burg in pen "fire .dt.g the closed

prudent with: respect to

prevent and stlpres hrush:and forest fires.

has first .been btained frbmtheagency empowetifbylawto $sue siich.periits. . .

. . Prior to any construction ordevelQPine:itthatwill ui:e, cvert; obstruct; pollute or utilze any of waters of the state, the pennttee shall fitst. ohtmnpprova! therefr from the

season unless a permit therefor

the 'Commissioner of the

expiration. .
:=J. . .

Deparment of Fish aid Game and file. ai intage .copy thereof with the grantor.

,Any la;nd$; inchided in ths .pernt Whih :ae sold under: '~.;contra'tto purchase shall be subject to

this permit. Upon is.suance ottitle t.o the purehser, this p'etmt shall reiii in effect until its date of
In case the necessity for the right-of-way shal no'longer exist, or the permittee should abaidon or fail to use the same, then thi permit shall terminate,

The State of Alaska shall be forever whllyabsolved from any liiibilty for damages which might result to theperm.ittee herein on account of this perithaving been cancelled,torfeited, or teriinated prior
to the expiration ofthe i time for which it Was issue?. ... . .. .
, .: Perntteewill be requited to submit proo(ofilurance everytwo.(2) years. The anniversary date . '. will be January 1. Inurance will be a mium ot$l,OOO;OOO coDibind single limit per occurrence and

$5,000,000 annual aggregates where generaly applicable and shal include airort premise-operations

liabilty, independent contractors, productcompleted operations, broad form property damage, blanet

contractual and personal injur endorsement. .

BK 0 2 5 7 i~ PG 5 6 2

Right,of-Way Permit ADL 220602

Page 3 of 4 .

NOW THREFORE, in accordance with the provisions of AS 38.05.850 and the rules and regulations
promulgated thereunder and In accordance with the conditions heretofore set forth ot attached made apart hereof, the permtteeherel is said nght-of~wayover and

hereby aiithonzed to locate, construct, o.perate and maita

across the lans nt.em described..
caused these

hereto and

IN WITNSS WHREOF, the said grantor has t!le permIttee herem has hereunto affixed his

signature on the dRya:nd :Year first above wrtten.

presents to b sIgned in duplicate and

Permittee.:
. Production Manager

This petiit expres December 31,2014.

UNITED STATES OF AMRICA )

State of Alaska )
~. .'.. I.. ;. This is -to cert/that onthel7th day I . R. Dartez to be ham and known to me to

)s

of Deeinber . 19 93, before

me, p'ersonaly a.ppeared_

be the person named in .and who executed said

document and acknowledged voluntarly signg the same.

IN TESTIMONY WHREOF, I have hereunto set my hand and affixed my offcial seal, the day and
year in this certifcate fist above written.

'. :~~'\"'~'~"'.';""~,\r- .

i ~ota Public m and for the State of Alaska

~~~~ Kathleen G. Heckel

My Commission Expires: October 17. 1994

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. BK 0 2 5 7 4 PG 5 6 4

ii:x H i HIT

''.'

LEGAL DESCRION
RIGHT OF WAY PERIT
ADL 220602

A parcel of State land lyig with the Anchorage Recording District, Thid Juclcial
District, in Section 32, Township 9 Nort,

parcularly descrbed as follows:

Commencig Sections 5 and 6, onthe township lite of

Rage 14 West, Seward Meridian and more

at the U.S. B.L.M. monument markig the :sectioh corner common to

Township 8 and 9 North, Range 14 West,

Seward M'eridian,proceed South 89 41' SH" West:. along the township line of

Township 8 a:d9- Nort,JRange 14 West, Seward Meridian, a dlstac.e of 1839.68 feet

LEGAL DESCRIION:" .
Thence proceed along the townsmplie between Township 8 and

to a opperweld iwnumant and. the TRUE POlN OF nEGlNG OFTm

9 North, Rage 14

West, Seward Meridian, North 89 41' 58',' East a distance of 145 feet to a point;

Thence North 010 07'42" West adstace of 1;320 feet to a point;

Thence South 8852' 18" West a distace of 400 feet to a point;
..
.' .-~

...- "' ,- . .

Thence South 01 07' 42" East a distace of 1314.2-2 feet to a point on the township
1Inebetween Townsmp 8 and 9 Nort, Range 14 West, Seward

Meridian;

BEGING OF THIS LEGAL DESCRIPON."

Thence Nort 89041' 58" East a distace of 255.04 feet to the 'TRUE POIN OF

Tils parcel contais approximately 12.10 acres more or less. Tils legal description
is derived from the Maiathon Oil Company plat :for application of Right-of:Way Permt dated November 1984 at a scae of 1"::400'.

Dated December 7, 1993

BK 0 2 5 7 L~ o~ 5 6 6

c .~- 0 0 i 8 1 0

i.

D/STn/GT .
ANCHOR!,GE REe.

;3C -C!C

REQUESTED BY fl/LJ-L-pt M

'9~ JAN 7 Pll 2 50

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Union Oil and as ~:)()n: Western Region

Union Oil Company 01 California 909 W. 9lh Avenue. Anchrage, Alaska 9S501
Telephone: (907) 279-7661

\ ,'.

tlfm G~IT
- ugiisl4, 1973.

MANAGEMENT CQMM1TTf:E TRADING:BY UNIT

(Mailng List Att:adld)

RE: WEST FORELAD ARA

STATE DF AI.SKA

West foreland Onshore

facilty Site - Surface

Acreage 194 Acre Parcel

..Gentlemen:

Unipn Oil Company of California and Marathon OU Company have re-

cently obtaIned title to the captioned sunac acreage from the State of Alaska in the proport.ions of Union 50 percent and Marathon SO percent.' the subject acquisition was made without Trading Bay Unit

partiCipation in order to service both the Trading Bay field and the
.license or lease to Pacific Alaska LNG Company to utflize a portion

McArhur River field. Union and Marathon. contemplate issuing a

of said parcel in and around the Union-Marathon gas transmission Hne, therefore. it becomes necessary to clarify and delineate the
rights of Union and Marathon and the Trading Bay Unit regarding said

surface acreage,
This letter shall constitute an agreement between your company and Union and Marathon whereby you relinquish all claim, right, title and interest in and to all of said 194 acre parcel which is the Trading Bay onshore production facility site located at West Foreland. Notwithstanding any provisions to the contrary contained herein, it is under-

stood that the production facilities located on the surface of the

subject property are not subject to this agreement.

EXHIBIT B

~~~ ~~
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Aug\lst 14, 1973

Management Comrittt'e _ 2 _
Trading Bay UnJt

Re: .West loreJand Onshre Facility She

Ii you are in agraeme:nt with the ~tlri:going te.I;.S and con.qit.ions,
please indicate YOl\r aCceptimCe thereof by af:ixmg you. signature

.hereto.
Very trily. 'Yours.,

UNION OIL COMPANY OT CALIFORNIA

By: ~t:~4/ . . Its AttorneY~in-Fact . / ...

MARATHON IL COMPANY
By;

'.

_day. of 1973.
COMPANY
By:

Accepted md Agreed to this

cc: Trading Bay Unit .

Land Legal Subcommittee

:*0~~"~::,~~.~~~~:~~z~~~~~~~~~~?:::~~P~,~~~~~l*~t?~~~~~~~~~~~~~~
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I N-(: \COMPANY CORRESPONDEC.:"'E

TO
R. H. .Anderson

/'
AUG. 2 1913

O",TI' AUgust 20,

as ka

OFFICI' Anchora.ge,. A"l

FROM
ru~t T,HIS ,LINe. '0'" rILE IlIE'-ERf;NC; .. Jiu_."i:'C.TI

H. L. 1.00~n

OFFICE Anchorage. 81

Re; UnJon letter of A!J9l:,st H. 19n

Tradfig Bay Ons.hore Fac;ility Site

Licens.e or lease to Pacific Alaska LNG

""-, The subjiic.t letter is hot t.echnkallycrrect. The original 36 acre she w.as
p.ad for by Marathon an.a Uni:Oh (5.0Xea.ch) and title i~as ieqi:l red

~~~..

and l:s iiYs~n'tl'y he~d in :l,JJi~ms' name aloneA The addition to th.e pr.oduc'ti"pn sHe of 146.,30 atre: was purchased by!.larathon in February,. 1968 by UContract for the 5ile of Real . Property." from the State. In this instanee Union .was Dille:d for 5.0% of th.e

purchase pri ce. We ha:.v requested hd have approval .to p.ay the. i'il.ance df tlie
pUf"ch~e in'i ce andre ceive tooveyaJce. of the ti tl e to this addit.iona'l 1 nd. P:i* l1nt was lIade. On July 2. 197:3. ~ut the.title papers !lave 'not yet b.een rece.ived.

permissi.on of the Trading Bay Unit Horking Interest owne'rs \..as l)ot acqijired,.

use. the surface of ce.rtai.n portions of the onsh.ore siteA In th inst.ance..the

In a similiar circumstance. Cook Inlet Pip.eHne CompanywilS granted the right to

The only diffference I can. see in this case is that Cook Inlet Pipeline Company

is handHng all Working .Interest Owners crude. a:"d. in tbe eas.e of Pacific Alaska LNG
that they are acquiring rights which at this time are owned only. by Marathon and

Uni on .

rhe correct acreage. count of the t\./O (2) tracts of land ;.S 182.30 acres.
Except for the abpve coimnts I find no real obJection to Un1.Qn's letter.

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tr~.$ ~.(~ ' ~~" .;, --~ ~ ~i-.. .,~~-Yv,-v /l ~ ~ ~A' IY -= - ~..-r~.- ~.q~/rL~) --(.~ . /V''-~ ~ o: A'---7; J ~ 'h ..~/~y .-t. .-,_d._~_.g:-r.
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to"

..1..-

Case 3:05-cv-0t:,:;:1' u-RRB Document 90

Filed 07/0);:;;)06 Page 1 of 13

rf;;

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ALASKA

FOREST OIL CORPORATION,

Plai.ntiff,
vs.
UNION OIL COMPANY OF CALIFORNIA d/b/a UNOCAL
ALASKA,

Case No.3: OS-cv-00078-RRB

ORDER DENYING DEFENDANT'S MOTION

FOR PARTIAL SUMY JUGMNT AT

DOCKET NO. 23 and GRATING PLAINTIFF'S MOTION FOR PARTIAL

Defendant.

SUMY JUGMNT AT DOCKET NO. 39

I. INTRODUCTION.
Defendant Union Oil Company of California ("Unocal U)
moves for partial surr~ary judgment on its affirmative defense of

accord and satisfction. 1 Unocal argues that under the terms of

Article 7 of the Unocal/Forest il Alignment Agreement thE: parties

waived, dismissed and released any and all claims against each

other that arose prior to the execution of the Alignment

Clerk's Docket No. 23.

ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 1

3; 05-CV-0078-RRB

EXHIBIT C

/'''

Case 3:05-Cv-(k.~ ~:~-RRB Document 90 Filed 07JO:~:.:i06 Page 2 of 13

Agreement.~ Plaintiff Forest Oil Corporation -("Forest"). disagrees,

opposes the motion~ and has cross-moved for summary judgment in its

favor. .

Neither party has requested oral argument and the Court

has determined that oral argument would not assist the court in
resolving the motion. Because the Court finds that, as a matter of
law, Article 7 can not be construed to extend to encompass Forest's

allegations in its complaint, Unecal's Motion for Partial Sumary

Judgment is DENIED and Forest's Motion for Partial Summary Judgment

is GRATED.

II. BACKGROUN/FACTS.

Forest and Unocal own working interests in several

offshore oil and gas leases located in Alaska's Cook Inlet.' These

interests comprise the Trading Bay Properties. 6

There are four

agreements that govern the ~elationship between Forest and Unacal

regarding the development and operation of the Trading Bay

Properties. These agreements are:

Id.
Clerk's Docket No. 27. Clerk's Docket No. 39.

Clerk's Docket No. 18 at 3.

I. Unocal and Forest are the sole working interest owners of the oil assets underlying the Trading Bay Properties. Id. at 4.
ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 2

3: 05-CV-0078-RRE

Case 3:05-cv-0\:../...RRB Document 90 Filed 07/0:::..~06 Page 3 of 13

I. The Trading Bay Unit Operating Agreement ("TBUOA").J

2.

The Trading
("TBFOA") . ~

Bay

Field

Operating

Agreement

3. The Unit Agreement for the Development and

Operation of the Trading Bay Unit, State of Alaska

("TB Uni t AgreementU) . I

4. The Alignment Agreement Trading Bay Field/Trading
Bay Uni t ("AI ignmen t Ag reemen t") . G

The TBUOA, TBFOA, and Alignment Agreement are, by their express

terms, governed by Alaska law. ii

The factual background is

undisputed and is taken from Unocal' s motion. ,2

The Trading Bay Agreements were negotiated or entered
into by and among Unacal and Forest (and/or their predecessors in
interest) in the late I 960' s and have been amended several times

over the years.

Up until the 1990s, there were multiple working

interest owners in the Trading Bay Properties, and mul tiple parties

to the Trading Bay Agreements.

Addi tionally, the Trading Bay

Properties

were

-:omprised

of

numerous

'.vor king

interest

participating areas ("WIPAs") with ownership among the working

Clerk's Docket No. 23 at Ex. A.

Id. at Ex. B.
I d. a t Ex. C .

Id. at Ex. A. for Tabler Declaration. 11 rd. at Ex. A, p. 50 31.2; Ex. B., p. 28 23.2; Ex. A for

lij

Tabler Declaration, p. 8 9.6.

! :~

~; Clerk's Docket No. 27.

ORD~R DENYING DOCKET 23 and GRANTING DOCKET 39 - 3

3: 05-CV-Q073-RRB

Case 3:05-cv-d~ .~.~ v-RRB

Documenl90 Filed 07/0;.;:.:~006

Page 4 of 13

interest owners in each WIPA being slightly different.

By 1996,
through mesne conveyances, the only working interest owners in the

Trading Bay Properties were Onocal and Marathon Oil.

In Decernber

1996 r1arathon conveyed. its int.erest in the oil WIPAs only to

Forcenergy.

In 2000 Forcenergy conveyed its interests to Forest.

At that point, Onocal and Forest became the sale working interest
owners of the oil assets underlying the Trading Bay Properties.

The varying ownership in the WIPAs created accounting

nightmares and required hundreds of thousands of accounting

transactions each year.

Allocation of costs to various WIPAs

became a bone of contention between Unocal and Forest as each

company sought to allocate costs to WIPAs in which each owed a
smaller interest. To avoid the associated costs and confusion, and
to resolve various claims that arose under the disparate ownership,

Unocal and Forest commenced negotiations with the obj ecti ve of

rationalizing or equalizing their respective interests in all the

Trading Bay oil WIPAs. These negotiations were successful.

By way of that certain Alignment Agreement dated
January I, 2002, Onocal and Forest aligned their respective working

interests in the Traing Bay Properties, including al 1 WIPAs

(except for and excluding the Grayling Gas Sands WIPA). Since the

alignment of interests (ortherwise known as "Common Equity"),

Unocal maintains a 53.2% working interest and Forest maintains a

ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 4

3 :05-CV-Q078-RR8

.' .'

Case 3:05-cv-6~'.:.. v-RRB

Document 90 Filed 07l0L.:';;06

Page 5 of 13

46.8% working interest in all oil WIPAs comprising the Traing Bay

Properties.
Article 7 of the Alignment Agreement provides;

participation claims against each other,

Forest and Unocal hereby waive, release and dismiss any Production, revenue, and Cost

related to any current dispute, know or

unknown, disclosed or undisclosed, whether greater or lesser in si ze than any party initially believed, arising from Trading Bay
Field or Trading Bay operations, transactions or agreements pre-dating this Agreement.

Forest initiated this lay/suit alleging four causes of

action arising out of Unocal's conduLt as the field operator under

Forest's first claim asserts breach of ontract seeking an unspecified amount of damages, alleging that
Unocal, as the operator, acted impudently by incurring unnecessary

the TSUOA and TSFOA.

and excessive costs in operating the field. Forest's second claim

seeks a declaratory jUdgment that Unocal' s operations have been

imprudent. The third claim, also brought as a breach of contract

action, seeks to recover certain allegedly unauthorized expenses.

Forest's final claim seeks adjudication of exception claims noted

in the routine audits made by Forest, or its predecessors in

interest, under the terms o'f the TBUOl\ and/or TBFOA.

Unocal alleges in this motion that the claims made by

Forest based upon events or acts that pre-date January 1~ 2002,

have been waived.

Forest, in its cross-motion, seeks a contrary

ORDER DENYING DOCKET 23 and GP~NTING DOCKET 39 - 5

J: 05-CV-007a-RRB

..

/,-

Case 3:05-cy-ci:~:iu-RRB Document 90 Filed 07/0t:~J06 Page 6 of 13

determination, i.e., that it has not waived its claims to the

extent they arise out of events or acts that pre-date January 1,

2002.
III. STANAR OF REVIEW.
Summary judgment is appropriate if, ,,,hen viewing the
evidence in the light most favorable to the non-moving party, there

are no genuine issues of material fact, and the moving party is

entitled to judgment in its favor as a matter of law.!;

"Credibility determinations, the weighing of the evidence, and the

drawing of legitimate inferences from the facts are jury functions,

not those of a judge, .(when) he is ruling on a motion for summary
judgment.

1114 In response to a properly supported motion. for surmnary

jUdgment, the opposing party must set forth specific facts Showing

that there is a genuine issue for trial. 15 The issue of material

fact required to be present to entitle a party to proceed to trial

is not required to be resolved conclusively in favor of the party

asserting its existence; all that is required is that sufficient

evidence supporting the lairned factual dispute be shown to require

13 FED. R. Cr\!. P. 56(c; Lopez v. Smith, 203 F.3d 1122, 1131

(9th Cir. 2000) (en bane); Tavlor v. List, 880 F.2d 1040, 1044 (9th Cir. 1989).
14

Anderson v. Libertv Lobbv. Inc. 477 U.S. 242, 255 (1986).

is FED. R. C!v. P. 56 (e); Henderson v. Ci tv of Simi Valley, 305

F.3d 1052, 1055-56 (9th Cir. 2002).

ORDER DeNYING DOKET 23 and GRANTING DOCKET 39 - 6 3; C5-CV-0078-RRB

,
Case 3:05-cv-ol~ ~ :u-RRB

Document 90 Filed 07/0-:;::':06 Page 7 of 13

a fact-finder to resolve the parties i differing versions of the

truth at trial.

There is no genuine issue of fact if, on the

record taken as a whole, a rational trier of fact could not find in

favor of the party opposing the motion.'~

iv. DISCUSSION.

As noted above, the interpretation and effect of the

Alignment Agreement is governed by Alaska law. When interpreting

state law, this Court is bound" by the decisions of the state's

highes t court. In the absence of a decision by the highest state

court, this Court "must predict how the highest state court would

decide the issue using intermediate appellate court decisions,

decisions from other juriSdictions, statutes, treatises, and

restatements as guidance. un

A release is interpreted in the same manner as any other

contract.il With respect to contract interpretation, the Alaska

Supreme Court recently stated: 19

; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574, 586 (1986).

." S.D. Mvers, Inc. v. City and County of San Francisco, 253 F.3d 461, 473 (9th Cir. 2001); Paulman v. Gatewav Ventures Partners

III L.P. (In re Filtercorp, Inc.), 163 F.3d 570, 578 (9th Cir.

1998) .
Schmidt v. Lashlev, 627 P.2d 201, 204 n. 7 (Alaska 1981). 15 Norville v. Carr-Gottstein Foods Co., 84 P. 3d 996, 1004
U.:

(Alaska 2004) (internal quotation marks, footnotes, and citations

. (continued. . .)
ORDER DENYI NG DOCKET 23 and GRANTING DOCKET 39 - 7

3: 05-CV-0078-RRB

Case 3:05-cv-t::.".J i v-RRB Document 90 Filed 07/6:......;.0.06 Page 8 of 13

The objective of contract interpretation is to

expectations of the parties.

determine and enforce the reasonable

extrinsic evidence regarding the parties l

. examining the language used in the contract,

court looks to the wri tten contract as well as

In determining the intent of the parties the

parties i expectations are assessed by

case law interpreting similar language, and relevant extrinsic evidence, including the
subsequent conduct of the parties

intent at the time the contract was made. The

present extrinsic evidence to clari fy a

contract's meaning, when this evidence points

Interp~etation of a contract is ordinarily a question of law. But interpretation becomes a. task for the trier of fact when the parties

towards conflicting interpretations of the contract, and when the. contract itself is
reasonably susceptible of ei ther meaning.

On the other hand, where there is no dispute as to the extrinsic

evidence, interpretation of contractual intent is a matter of law

to be determined by the court. ."J

As the issue presented by the motions at bar involve the

interpretation of the release clause contained in the A~ignrnent

Agreement, extrinsic or parol evidence may be received.::i The Court

ig (... continued)
ami tted) .

~ Herrick's Aero-Auto-Aaua Repair Service v. State. OeD!. of Transp. and Pub. Facilities, 754 P.2 1111, 1116 (laska 1988) .

~, Alaska Di versi fied Contractors. Inc. v. Lower Kuskokwim Sch. Dist., 778 P.2d 581, 534 (Alaska 1989) ("Extrinsic evidence
may always be received on the question of meaning. H) .
ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 8

3: 05-CV-0078-RRB

Case 3:05-cv-L ~', u.RRB Document 90 Filed 07/d~: ~ ~006 Page 9 of 13

may look to "the language and conduct of the parties, the objects
sought to be accomplished and the surrounding circumstances at the

time the contract was negotia ted. ,,:l:l The conduct of the parties
subsequent to the agreement is also relevant to the determination

of intent. ~3 However, it has also been stated: ~

Differences of opinion among the parties as to their subjective. intent, expressed during the litigation, do not establish an issue of fact regarding the parties' reasonable expectations

since such self-serving statements are not.

at the time they entered into the contract,

party 1 s unqerstanding of the contract in

attempting to give effect to the intent behind the agreement.

considered to be probative. Rather, the court must look to express manifestations of each

The Court must now apply these principles to the question

before it.

The parties have produced little evidence as to

specific conduct after January 1, 2002, that would tend to explain

or interpret the Scope of the release.:~ The primary evidence as

~. Pepsi-Cola Bottlina Co. v. New Hampshire Ins. Co., 407 P.2d 1009, 1013 (Alaska 1965).

North Paci fic Processors, .Inc. v. Ci tv and Borouqh Yakutat. Alaska, 113 P.3d 575, 585 (Alaska 2005).

of

:'4 Peterson v. Wirum, 625 P.2d 866, 870 (Alaska 1981)

(footnotes and internal ci tations omitted).

.J The evidence submitted consists of the unrefuted testimony

of Mi tcheii Fischback in opposition to Unocal' s motion that subsequent to January 1, 2002, Unocal either did not raise or wi thdrew any objections to audi ts of 1999, 2000, and 2001 by Forest. Clerk's Docket No. 27, Fischback Decl. Whi 1e this is of

(con tinued. . . )
ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 9

3: 05-CV-0078-RRB

Case 3:05-cv-OL:.:~'v-~RB Document 90 Filed 07/0t: ~~':6 Page 10 of 13

to the intent of the scope of the release must be derived from the

language of the Agreement,

the objective sought,

and the

surrounding circumstances.
Paragraph 3 of the preamble to the Alignment Agreement
states the general intent and purpose of the agreement.

~. Forest and Unocal desire to align their respective Working Interests relative to all Production and Costs in the Trading Bay Field and all Production and Costs relative to all interests (excluding the Grayling Gas Sands) in the Trading Bay Unit, as provided in this Agreement, so as to create an area of common

lease i.nterests.

The facts preceding and surrounding the .l\lignment Agreement as

reci ted by Unocal in its motion and concurred in by Forest clearly

establish that the impetus for the negotiations and the ultimate

agreement between the parties was the varied ownership .of the

working interests that were creating accounting problems and

disputes between the parties regarding the proper allocation of
cos.ts and production revenue att.ributable to the various WIPAs.

Article 4 entitled "Working Interest Alignment; Production and

Revenue Participation," the heart of the Alignment Agreement,

provides:

~s ( . . . continued)
some probative value concerning the scope of the release, the Court does not accord it any significant weight.
ORDER DENYING DOCKET 23 and GRANT ING DOCKET 39 - 10 3: 05-CV-Q07fi-RRB

Case 3:05-cv-ol:"/o-KRB Document 90 Filed 07/0L:"~6 Page 11 of 13

Commencing on the Efective Date, Unacal' 5

and Forest's Working Interests in the TBF,

TBU, and TBPr shall be held in accordance wi th each party's Relative Interests such that all

Production an Costs from the TBr and TBU

(excluding Grayling GS Sands and Grayling Gas

Sands vHPA) shall be allocated 53.20% for

Unocal and 46.80% for rarest. Any other

revenue derived from TBFi TBU and T8PF assets shall be similarly apportioned.
Atticle V, entitled "Cost Participation, H provides:

5.1 General. Conuencing on the Effecti ve

the TBF, TBU, and TBPF shall be allocated.

between the Parties in the percentage of each Party's Relative Interes ts. This shall apply

Date, the costs or all operations related to

to all such Costs due on or after the

Effective Date, regardless of when they were

incurred.

5.2 Abandonment. Conuencing on the Effective Date, the Costs of all Abandonment operations in the TBF, TBU, or TBPF due on or after the Effective Date, regardless of when they were

Relati ve Interests.

Parties in the percentage of each Party'.s

incurred, shall be allocated between the

the Effective Date, the Costs of all

Environinental Remediation for the TBF, TBU, and TBPF due on or after the Effective Dat~, regardless of when they were incurred, shall

5.3 Enviro~mental Remediation. Co~mencing on

be allocated between the Parties in the

percentage of each Party's Relative Interests.

In his declaration submitted in support of Unocal's

motion,

Kevin A.

Tabler stted: "Article -it,

CIa ims,

of the
~.

Alignment Agreement effected a mutual release of all claims between

Forest and Unocal prior to the execution of the Alignment

ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 11

3: 05-CV-0078-RRB

Case 3:05-cv-O;:.~.:lo-RRB Document 90 Filed 07/0').:.::006 Page 12 of 13

Agreement.

It was our intent to 'wipe the slate clean' and start

fresh as of January 1, 2002. This was an important term to Unocal,

and it was negotiated at arms length and in good faith. H

Article 7 itself refers to the release of "Production,
revenue, and Cost participation claims,.H (emphasis added) a very

narrmv category that is entirely consistent with the Alignment

Agreement taken as a whole, i.e., it addresses the allocation

between the parties, nothing more. The sale evidence proffered by
Unocal that might possibly support its position is the self-serving

testimony of Mr - Tabler, which has no probative value. There is

nothing in the Alignment Agreement itself or the circumstances preceding or surrounding its execution chat logically tends to
support the expansive interpretation advanced by Unocal. The Court

finds that, as a matter of law, Article 7 of the Alignment

Agreement Trading Bay Field/Trading Bay Unit released only those

claims arising out of. or associated with the allocation of the

cas ts incurred in connection wi tn and revenue der i ved from the

Trading Bay Properties.

It did not operate to release all other

claims that the parties might have in connection wi th the TBUOA or

TBFOA. In particular, it does not extend to claims based upon the

propriety of expenditures made by Unocal as operator under the

TBUOA and/or TBFOA, the subject of this lawsuit.
Hairever, lest

there be any misunderstanding as to the scope of the Court's

ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 12 3: C5-CV-0078-RRB

Case 3:05~cv-O();'.. .l.-KRB Document 90 Filed 07/01)~~J6 Page 13 of 13

ruling, to the extent that Forest's claims are predicated upon the

allocation of the expenses between the parties during the years

preceding 2002, those claims have been ',.aived and any and all
claims related to allocation are precluded.

V. CONCLUSION/ORDER.
For the foregoing reasons,

i. Defendant's Motion for Partial Suwary Judgment at

Clerk's Docket No. 23 is DENIED; and

2. Plaintiff's Motion for Partial Summary Judgment at

Clerk's Docket No. 39 is GRAED.

ENTERED this 7t:. day of July, 2006.

Is/ RALPH R. BEISTLINE UNITED STATES DISTRICT JUDGE

ORDSR DENYING DOCKET 23 a:'d GRANTING DCCKET 39 - I3

3: 05-CV-0078-RRB

/1 -.J(f -0(.
, ,

Case 3:05-ev-o'/8-RRB Document 95 Filed 08/01)2006 Page 1 of 3 r- U./ ~c

~J
;.111.-i . .' I L/~

\......:

IN THE UNTTED STATES DISTRICT COURT

FOR THE DISTRICT OF ALASKA

FOREST OIL CORPORA TlON,

Case No. 3:05-cv-00078-RRB

Plaintiff,
vs.

ORDER DENYING DEFENDANT'S

MOTION FOR RECONSIDERATION AT DOCKET NO. 91

UNION OIL COMPANY OF CALIFORNIA d/b/a UNOCAL ALASKA,

Defendant.

i. INTRODUCTION.
At Docket No. 91 Defendant Union Oil Company of

reconsideration of

California CUnoeal") has moved for the Order Denying Defendant's Motion for Partial Summary Judgment at

Docket No. 23 and Granting Plaintiffs Motion for Partial Summary Judgment at Docket No. 39.'
At Docket No. 94 Plaintiff Forest Oil Co. ("Forest") has tlled its opposition.

II. STANDARD OF REVIEW.

As long as a district court retains jurisdiction over a case, it has inherent power to

reconsider and modify an interlocutory order for sutTcient cause.2 That inherent power is not
unfettered: "the court may reconsider previously decided questions in cases in whieh there has
been an intervening change of controlling authority, new evidence has surfaced. or the prvious

disposition was clearly erroneous and would work a manifest injustice.")

i Docket No. 90.

1 City olLos Angeles, Harbor Division v. Sanla Monica, 254 F.3d 882, 885 (9th Cir. 200 I)
) Leslie SaIi Co. v. Uniied Slales, 55 FJd 1388, 1393 (9th Cir. i 995); see also ,)'chool Disrricl No. 11, A1ulrnomah County, Or. v. ACandS, Inc., 5 FJd 1255, 1263 (9th Cir. 1993) ("rrJeconsideration fof

grant of summary j udgmentJ is appropriate if the district court (I) is presented with newly discovered evidence, (2) committed clear error or the initial decision was manifestly unjust, or (3) if there is an intervening change in controlling law").

EXHIBIT D

Case 3:05-cv-G\,,J/d-RRB Document 95 Filed 08/0.."..006 Page 2 of 3

III. DISCUSSION.
The first two grounds for reconsideration, intervening change of law or n.ewly discovered

evidence, are not at issue in the motion at bar. Unocal argues that the Court erred "by finding
that the tenn 'Cost' as used in Article 7 is limited and narrowed by the undefined term
'participation .claims.''' Unocal misreads the decision of

the Court. The Court agrees that the

definition or

meaning of

the tenn "Cost" in the Alignment Agreement is as provided in the

Trading Bay Field Joint Operating Agreement or the Trading Bay Unit Operating Agreement.

But that is not the question the Court was required to answer. The Court was not defining the
word "Cost"; it was determining the intent of

the parties in the Alignment Agreement.

What Unocal would have this Court do is determine the intent of an agreement focusing

on the meaning ora single word. This is manifestly incorrect as a matter oflaw. A contract is
read as a whole.4 Article 7, upon which Unocal rests its arguments, states in relevant part "Forest and Unocal hereby waive, release and dismiss any Production, revenue, and Cost

participation claims." The word "participation," as do the words "Production, revenue, and
Cost," modifies, limits or defines the extent of

the claims released_ To re.ach the conclusion.

sought by Unocal would require the Court to treat the word "participation" as mere surplusage
and read it right out of

that sentence, whic.h would be improper.; Unocal's construction ,:ould

have that sentence read "Forest and UnocaJ hereby waive, release and dismiss any Production,
revenue, and Cost claims." This would not only be contrary to the over all purpose of

the

Alignment Agreement (to adjust the allocation between the parties) but also would result in a
rewriting of the express language of

the Alignment Agreement. The Court can no more do this

them.

than it can read out ofthat sentence the words "Production, revenue, and Cost," or any of

~ Monngo v. Alaska Air Groiip,

inc., 112 P.2d 655, 660 (Alaska 2005) (';(c)ourts look to

contracts as a whole"); Matanuska Elec. Ass 'n, Inc. v. Chugach Elec. Ass 'n. Inc., 99 P.3d 553, 562

(Alaska 2004) (';(iJn reaching a reasonable interpreiation of a contract, we attempt to give effect to all of
its tenns"); RESTA TEMENT (SECOND) CONTRAcrs, 202, cm!. d. ("'( w)here the whole can be read to give

significance to each part, thaI reading is preferred-)

5 See Jarvis v. Ensminger, i 34 P.3d 353, 360 (Alaska 2006); RESTATEMENT (SECOND)

CONTRACTS. 203(a) ("an interpretation which gives a reasonable, lawtl, and ef1ctive meaning to all

the terms is pretrred to an interpretation which leaves a part unreasonable, unlawful, or of no effect"); see Id, cmt a. ("(slince an agreement is interpreted as a whole. it is assumed in the first instance that no part of it is superfluous").
()RDER DENYING DEfENDANT'S MOTION FOR RECONSIDER" TION (DOKET 91) - 2
3 .05-CV .00078- RR

Case 3:05-cv-Olvv; ..-RRB Document 95 Filed 08/0\;~U06 Page 3 of 3

Although it was not mentioned in the Order, the Court did not overlook the Declaration

of Kenneth W. Griffn. All Mr. Griffn does is state his understanding that the term "Cost" has
the same meaning in the Alignment Agreement as in the Trading Bay Agreements (a point not at

issue) and that he did not "recall the specific intent of either Union Oil or forest to exclude
audits foin the scope of Article 7 of

the Alignment Agreement." The fact that Mr. Griffn can

anything except his lack of

not recall something is not probative of

recollection. This is

particularly true in light of

the fact that what the Court was called upon to interpret was the

scope of

the claims encompassed by Article 7. These are defined by FOUR words-Production,

revenue, Cost. and participation-all of which must be given appropriate effect.

Unocal also would have the Court ignore Article V of

the Alignment Agreement entitled

the costs "allocated between the Parties in

"Cost Participation." That Article speaks in terms of

the percentage of each Party's Relative Interests." While the Alignment Agreement did not alter
the detnirion or meaning of

"Costs," reading the Alignment Agreement as a whole, as the Court

miist do, the claims released by Aiiicle.7 are the "Cost participation" claims, which are within
the context of

the Alignment Agreement necessarily limited to the allocation of costs.

iv. CONCLUSION/ORDER.
For the foregoing reasons, Detndant's Motion for Reconsideration of

Order at D9cket

No. 90 at Clerk's Docket No. 91 is DENIED.

Entered this 28th day of July, 2006.

/S/ RALPH R. BEISTLINE UNITED STATES DISTRICT JUDGE

ORDER DENYING DEFENDANT'S MOTION FOR RECONSIDERATION (DOCKET 91) - 3

3:u5.CV-GOO78-RRB

"h

'"

rCRM NO OL-l
(REVIsED APRIL. UIS.)

STATE OF itSKA

Ul:.. ARTltENT OF NATU RESOti....J:S

Division of Lands
Competi1Ve Oil and Gas Lease

LEASE No. ..i.S:Z3D AOL- ..

ized agent. hereinafter called "lessor". and .

of Alaska, acting by and through the Director of the Division of Lands. Departent of Natural Resources or lis author_

THS LEASE, dated the......l.t...day of ....~.t.9J~.tn:......_................., 19......G-.~.; is made by and between the State

....mm...........IDQJ.LQi....C-QMtA:N...QF...QALIf.OBN...lLsl11'Qnli..s9J:Q!:.:tlQIL.s..nL...........................................

lease unto Lessee. exclUSively. without warranty. for: the sole and only purposes of exploration. development, prodUCtion

hereinafter called "Leee". whether one or more. . ........._................. 1. GRANT. For and in consideration of a cash bonus and the first year's rental. the receipt of whi-:h is hereby acknOWledged. and of the rentals. royaties, covenants, and conditions herein contained on the part of the Lcssee to be paid. kept and performed, and subject to the conditions and reserations hereil! contained. Lessor does hereby grant and

.......~."........-im..QRrO_.Oli....QWA.NY,._~!LQh.i.Q....QJ:Q.:ia.UO.t_.m._....__........._........._.........._.......... ..

and for driling water wells and taking underground and suriace water for use in its operations thereon. and for housing. and boarding employees in its operation .thereon. the fOllOWing described tract of land in Alaska;
Trct 8-13-5-58

proceSSing and marketing of oil. gas. and associated substances. produced therewith. and of installng" pipe lies and :strctures thereon to find. produce. save. store. treat, process, tranport, take care of and market all such SUbstances,

containingJ.,.8kO..Q.......acres. more or less. hereinafter called "said land".

surveys.. .
land attached hereto. maTked Exhibit A and by this reference made a part of ths lease.

For the purposes ot this lease. said land contains........ 6~.....__..._.....-iegal SUbdiVisions. as shown on the plat of said

If said land i,; described above by protracted legal .sudivisions, or by offiCially designated tract numbers, and Lessor hereafter causes said land .to be surveyed under the public land rectangUlar system. the boundaries of said land shall be

those eStablished by such survey, when approved, subject, however. to the provisions of the regulations relating to such

2. "OIL AND GAS". "OU" mean crude petrOleum o and other hYdrocarbons regardless of gravity which are produced :ind saved in liqUid ioon at the well by ordmary production methods. "Gas" means all natural gas and all hydrocar_
tion with oil or gas and not defned herein as oil Dr gas
bons produced at the well not defied herein as oiL "Associated substances" means ll substaces produced in associa_
3. TERM. This lease. is issed for an initial priry term of five years from the date hereOf. SUbject to. extension as provided in Paragraph 4 hereo"i. and shall Continue so long thereafer as oil and gas or either or any of them are

the interest of conservation, directs or assents to the Suspension of all operations and production. if any, hereunder.
the primary term wil be eJltended by adding the periOd of SUSpension thereto.

produced in paying quantities from, sa.id land; provided, that this lease may be extended beyond its primary term as prov.ided in Paragraph 5 hereof altd shall not expire under the conditions set fOrth in Pargraphs 6. 7. and 8 nereof. 4. EXTENSION BY SUS1.ENSION OF OPERTIONS. If. prior to the expiration of the primary term. Lessor. in

scribed by Lessor as provided in .the r.egulations. productiOn of oil or gas is had in paying quantities under the agreement, and.a .PO:ition of suCh production is allocated to said land under the agreement. In such event this lease shall con-

5. EXTENSION BY UNIT. PRODUCTION (a) This lease shall without application be extended beyond its. primary term if Upon or prior to the expiration date of such term the lease is committed to a unit agreement apprOved or pre"

said land; (b) The Commissioner may, in his discretion prOVide for the extension of the term of .ths lease, if such lease is on the expiration date thereof included in an approved unit plan or if it. is included in a program of secondary recovery Operation designed to bring about or restore production, provided, hOwever, that if any lease or portion thereof is eliminated from such unit plan or recQvery program. or if such unit plan Dr recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90l days from the date of such elimination or termination and so .long thereafter as drlling or redrg operations are being conducted thereon and so long thereafter as oil or gas is produced 1n paYing quantities.

tinue in effect so long as it remains. SUbject. to such agreement and action production "under said agreement is allocated to

by the lease are lands that have been seected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was i-"Sed thereon. the teon of the lease shall be extended for a period equal to the period during which (he lease was conditional.

term. and if, at the end of the primary term, or at any time prior. to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any timeobtained in paying quantities during the priar or times after. the expiration of the primary tenn cease from any ca.use. then this lease shall not tenninate if the Lessee commenes driling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production. and the lease shall remain in full force and effect so long as such operations are prosecuted with. reasonable dilgence or are suspended under Paragraph 27 hereof; and. if mch driing or reworking opertions result in the prOduction of oil or gas. the lease shall remain in full force and effect so long as oil or gas :is produced therefrom in paying quantities; (b) if actual drillng has cOl1enced on the expiration date of the primary terms of the lease and 15 continued with reaSonable dilgence. such operations to include redriIing, sidetracking or other means necessary to re.ach the originally proposed bottom hole location, the lease shall continue in full force and efect until ninety (90) days after such driling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (c) if all or part of the lands covered

6. EXTENSION BY DRIG. (a) If prOduction shall have been.

7. EXTESION BY SHU-IN PRODUCTON. If. upon the expiration of the primary term or a.t any time or ties

of Lessor. h.
is allowed by Lessor. .
operations in Dr upon or prOduction from said land

after such status is established such production shall Continue on the said land unless and unti SUspnsion of prodUction

less than sixty days. after such notice to place the Well on a producing sttus, and Lesee fai to do so; provided, that

thereafer, there is on said land a well capable of produCing oil or gas in paying qu:mtities, ths lease shal not expire because Lessee fails to produce the same Uless Lessor gives notice to Lessee allOWing a reasonable tie, which shall not be

8. EXTENSION BY SUSPENSION OF PRODUCTION. Ths lease shall not exire because of any SUnson of

if such suspension is made under any order or with the Consent

EXHIBIT E

provIded In Psraph 13 ot thIs leae. If L.".or"s orrtce I. not open ror buslne:8 on the annlveniar date the ti.. tor xYmeit la extenaed

Bum equal to i1.00 per acre, .or tractlon tber-eot,. then Included In this lease. or unlc:B .such annual rental baa been waJvAd or 8uaponded as

ptoduclng all or guB In P871ni: quaitJties.. unless 00 or betoT6 saId anniversary date Leee shoI payor leader to Lesor as annia. r.enta a.

v. RENTAL ThIs l""e shall termr.ate 0" any annherall aate bereot prIor to tbe complotlon on old land Dr a w..II ""&hI.. ot

te !nclud. tbe "ext day on whIch salcl oNlc.. Is open tor buslnes.. Any rental psld (or anyone lease ye.. "liall b. crealted on a"y ro:rlty tor tlt Year.

the yea It I..s than ;I.OO per acre and ths prescrIbed mlnlmuw roYAlty.

prouclnl oU or ga In payIng quantltJea. Les.. shall ~y Lessor, at the expIration ot each leas Yea. In lieu ot rent a mInimum royalty equal to il.OO por acre. or traction tber""t. then Incluaea In thIs I.as.., or tiie dltterence between the actual r07alty Paid on production during

10. MINIM ROYALTY. Commencing with the lease year begInning on or aCtor completion on saId land ot a welt capable or

Lesa~lb..lo~~i:~;"o~i:s :i~s'.8&~~~~iio~;~t tor 011 and g. 1I.. on saId land tor development and production or unaVOidably 10..1,
(a) On 011 ....._ per csnt In amount or valus or the 011 produced and saved and rems-ved or sold trom ssld land.

tlonCb) On ga. ~-~ gasllb~a.mou:it or YaluB or-the ga prodUCed and isaved and Bold or used oU Ba1a land or lld 1'or the extlAcot n..tural per cent 10 -Or other prOducts theretrom. '
(c) wd landa.On associated substances -1-5 per cent In amount or value of such substances produced and 61lved and' reIoved or BOld from 12. REDUCTION OF ROYALTY RATES FOR DISCOVEY. It Lesse. sball drill on aald land aDd male the tlrat dlcovery or 011 or rri!: t~~::;:'~~~t ~~n,:I~~'ioi. :tnre:e;~~f~'ti:~~~urg t3:t~0:ra~~Jl'~~:::;~l:~di~~~~.i~~~~,: ~:t~::aYf/~:t~t,"iJf'l"e~li;e.~ ~".~~~.t~~ Pagraph 11. I'C this lease Is commUted to a unit agreement approved or prescribed by Les:sor as provIded In the. regulations, the five per cent royalty rate ahall apply to an, but onlY. the production allocated to this lease under such agrement. 13. REDUCTION OF RENTAL AND ROYALTY. Rental OT mInImum royalty may be waived. suspended, or reduced. or rOYalty may be reduced on allot aald land or any tract or porUon tbereot sgregsted tor royalty purposes It Lessor tlnds that such rellet Is necessary tor

tha.t Buch reUe! J.s necessar 10 order to promote development or that th~ )llase cannot be .suci:esstulJy operated "Onderresources and eJther I the terms provJded

the PUrpose ot encouraglng1he GTeatest ullJniate recovery ot oU or Bar and is In the interest ot con~ervaUon ot nature

U. ROYALTY IN KIND. VI'lenever, at tbe opU'm or Lessor, wblch llay be eurclsed Irom tIme to time upon not less tban alx montbE notlet- to Lessee, Lessor eiect~ to ta.ke lts royalty in kJnd. Lessee shall d~ih'er tree ot charge (on said land or at such place aa Le.aoT and Le.see mutually B.rd0s iipon) to L""sor Dr to sucb In!llvldua\. fIrm, or corpOration as Lessor mal. desIgnate all royalty 011 and/or gas prOduced
Le"see shall not be held Hable (or lO~3 or destruction of ra~lty oJ! and/oT ::is from C3uses be:yond Lessee's reaonable control. Should Lousee ~:~~~t;o~~I't;~'i ~~eg~;. or gas producad trom said land, es.ea shall ba entitled to an allOWance or the ..ntual c",t ot dehYdrat!ng or clee15. ROYALTY IN VALUE. At tho optlon ot Losor whIch may br exercIsed (Tom time to tlma upon not lesa tl. elx months' notlcs to
~~:art;';~lI~:' g: gh~",':~ 1~~Cti~~~ "3:t~r..fle"r ~~~I~~~ ~~ f~ ":~~d~r~iin~\~~~ ;.i'~Alll~ ~u~e~r':~~~;,Jt t~~":'i:;cli:;i:t::e':et~~r

hereIn.

.royalty that may becoms payable In money to Le.sor shall be paid on or betore the last day of tbe calendar montb tollowJng the month In

Lo.ee, and In lieu 01 royalty In kInd, Lesa" shall pay to Lssor the tleld market prlco or value at the well ot all roYalty 011 ana/or gii All

)OSIJ by reason 01 drainage resul Ung trom roductlon on other land. WUho;t JlmiUng- the gener2.Uty of the toregoing 8eJ)t~ncel Jt all or gas

16. PRICE. The tleld market prIce or value or royally oil or gas shall not be Irss than .the hIghest ot: (1) Tbe price actually paid or alleeil to be paId to Lessee at the well by the purchaser tbereor, It an)'; or (~i The posted price bt Lessee In the tleld tor such 011 or ga at tbe w611. If any; or, (3~ The prevalJng price receIved by other producers In the tJeld at the well tor 011 ot like grade and llv\ty or gas oC 17. PAYMENS. All peyments to Lessor .under tbis lelse sball land o~ run Into storage. or ineb gas ot dellverad oi an extractionAliuk. be made payble to the Department Is Ravenue to the State ot planL and shaU b tendered tD Lessor at the place designated under ParalP4ph 43 for giving notices to Lessor.. . 18. OFFSET WELLS. Lessee shall drm such well. as a reasonabl)' prudsnt op"rator would dril to prolen! Lesor adequately trom
like kind and quality at lbe time sucli 011 or gas Is removed trom saId

WhIch tb.. 011 or gas Is produced, 1:'Ie payments shall be .accompanled b)' copies ot run tickets Or other satisfactory evidence ot eales. .hlpmntll, and amounts or gross produet1on~

ahould be produced In a well on other land not owned by Le.!sor or on whIch Lessor receives B lower rate at royalty'than the royalty under

thl. leaso. whIch well Is wIthin 500 teet In the cae ot an 011 well or 1,500 feat In the ""se or a gas. well ot lands tben subject to tbls lea...

~~~ii';~~ .:ee~e:~t.ll.i~~~ciig~~ ~i,f~...ide~li:,: t~~::n~~~i" ~~ri tl3~~~~I~~ \~:;J; ~~;"iu~l~:i dt~il~nt.~~e~~s~~t~'ito ~~~~e Iad~s0v.~'l~;

productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug

strata to the destrction or injury of such deposits and the preservation and conservation of the propert for futue

all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, having duc regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or

ably prudent Operator would drill having due regard 10r tle interests of Lessor as wel as the interes of Lessee, 20. DILIGENCE; PREVENTION OF WASTE. Lesse shall exercise reasonable dlIgence in drilling, producig, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall car on

19. OTHER WELLS. This lease contemplates the reasonable development of said land tor on and gas as the 1act may justHy. Upon discovery of oil or gas in paying quantiies on said land, Lessee shall dril such wells as a reason-

ro)'alty through draInage In the amount determIned by lessor.

:ni;i;:~if~':~~e~y bi:m ~:~~..:p~~of::~:~ ~i;~ P~~l~ci~~s.i:i;e~o~~e~~ii~~~p~~~~oL:~~~ ~~ ~f,We;a~~iim"o':tt~o~aid- ~~J~~t~ 1~~1~1':~

shall c.arry out at Lessee's expense all reasonable orders .and requirements of Lessor relative to the prevention of waste

securely in an approved manner any well before abandoningit: shall allow Lesor to inspect all operations at any time;

and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conseration Commisson and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in efect if not inconsistent with any specIfic provisions of this lease.

and the preservation ot said land, and on failure of Lessee so to do. Lessor shall have the right together with any other recourse available to it to enter on said land to repair dama.ge or prevent waste at Lesor's expense; and shall abide by

21. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well.

stration of the functions. responsibilties. and duties vested by law In the Commissioner of the Department of Natural
Resources or in the Division of Lands or the Director thereof. Including but not limited to functions, respsibilties, and duties arising In connection with any litigation or administrative adjudication relating to ths lease or to the rights,

22. APPROVAL OF .PLANS. Lessee shall not place into actual operation any plan or method for the purpse of stimulating or increasing production on said land other than plans and methods in common use without fist having obtained the written approval of Lesor. 23. LOGS AND RECORDS. An electric log or radioactive log, If taken. and a descrptive geologic sample log, If taken, and a record of all tests run for each well drfled on said land, together .with a plat showing the exact location of each such well, shall be fied with Lessor within thirty (30) days after such well has been completed. suspended, or abandoned. Any and all information fied by Lessee with Lessor in connection with this lease shall be available at al times for the confdential use of Lesor for the purpose of enorcing Compliance with the terms, covenants, and c:onditions of this leare and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons performing any function or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (30) day filng period, except upon written consent of Lessee. Notwithstanding any other provision hereof. said information may be disclosed to any person where such disclosure is reasonably necessary for the admini-

duties, and obligations ariSing hereunder.

each welL.

Insure the most accurate figures reasonably available without requiring the Lesee to provide separate tankage for

examine the same. Such records. and reports of producton shall be based upon such methods and techniques as sha

24. RECORDS. Lessee i:h;iJJ keep and have in its possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hour to

~~ce.~a:y to determine the damage which the owner of such I"nrl m"v s"ffP-T. Lessee hPTPhv "",pp" tn n,w .mv n..nl_

25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act. Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under rescrvalions contained in certain leases or grants of Alaska land shall be exercised by Lesor or its Lessee unti provision has been madp to pay to the owner of the land upon wr;~h the reserved rights are. sought to be exercised full payment for al.'~ :es sustained by said owner by reaso~"1 .ering upon said land; provided, that if said owner ior any CJusc wi ! .-efuses or negl~ts to settle said d~ Leor or its Lessee shall have the right' to instiute such legal pro"""di.;gs In a court of competent jurisdiclio,. ';hb:ein the land is situated as may be

"

dama~e that may become payable under saId sttutory provisions.

. will be regarded by va. .iu l.VUUt:c".vn provision for the payment of al ui " tIna in compliance with tls Leasen.. .--r"__ _.-..~ __...Lesor as a suffIcient WAU.. ~ut:u ui:wagt:. ine rong

26. BONDS. _

an amount of at least $5,000.00.

$2.00 ~i' acre or fraction thereof COntained in said land but .not less than $l,Or. ..vO. ( b) Before beginnIng drillng operations on said land Lesee must have furnished and shal mainta a bond 1n
(.:) Lessee may. in lieu of the foregoing, furnsh and maintain a statewide bond in the amount of $100,000.00 (d) Lessor may, after notice to Lessee and an Opportunity to be heard, require a bond in a reasonable amount

(a) Lesee sh:;Il maintain .. furnished prior to the issuance of .lIi dse in an amount equal to at leai

any additional ?ond under this subparagraph.. .

need not thereafter maintain any bond with resect to the portion of said land so committed to'such'agreement.

greater than the amount specified above in this pargraph where such greater amotlt.is justiied by the nature of the ?f operations be:ng or to be carrIed out under this lease. A statewide bond will not satisfy any requirement of a bond
surface and its uses and improvements in the vicinty of said land and the degree of the risks involved in the tyes
(e) If said land is committed in whole or in part to a cooperative o! unit agreement. approved or p~escribed by

unposed Under this SUbparagraph but wil be consIdered by Lesor in determining. the need for and the amount of

Lessor pursuant to law and the regulatlons and a unit bond is furnished In accordance with the regulations, Lesee
27. ACTS OF GOD. Should Lessee be prevented from complying with any expresed or implied cov.enant of this lease. from i:onducting driling operations thereon. or from producing or marketing oil or gas from said land after efforts made in good faith, by reason of war, riots acts of God severe weather In the area of said land, acts of governmental authorities.. failure or l:ick.of adequate tra~sporttion f~cllties, or any other calise beyond Lessee's reason~ble ~ontro.l whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter withIn WhlC!i to resume operations. Leee's obligation to comply with such covenant shal be susp&nded and Lesee ~bal not b~ liable for damages for failure to comply therwith. If driling or reworking operations are suspended ?y :virte of this paragraph and the prosecution of such operations would have had the effect of preventing the eXpiration or termIn.ation of this lease, then this lease shall not terminate during the period which the obligation to perform such
to .suspend the p:iyment of rentas or of minlmum royalties. 28. SUSPENSION. Lessor Inay from time to time direct or assent to the suspension of production or other operations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor rese.rves the right to dispose of the surfac~ of said land to others SU?lect to this lealie, and the right to authorize others by grant. lease, or permit subject to this lease and under such ~onditions as will
(a) To explore for riii or g:is by geological or geophysicii means Including the drillng of shallow core holes or stratioperations is suspended under this paragraph; provided, however, that nothing in this paragraph shall he consted

prevent unne~essary or unreasonable interference with the rights of Lessee and operatIons under this lease, to enter
upon :ind iise si'd land:
graphic tests to a depth of not more than 1,000 feet.
(b) To explore for. develop and remove natural resources other than oil. gas, Bnd associated substances on or

from said land.

(c) For nonexclusive easements and rights of way for any lawful purpose inclUding shafts and t'innl'ls necessary or appropriate for the working of said land or other lands for natural resources other th:n oil. gas or associ.t~d substances.

and associated substances in and from other lands. .

und-ir this leas.e.

( d) For well sites and well bores of wells drilled :from or through said land to explore for or produce oil, gas, (e) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee

30. UNDERGROUND STORAGE. Tlis lease does not authorize the subsurface storage .of oil or gas exci:pt as a
necessary incident to recycling presre maintenance, repressuring, or other similar o~erat1ons designed to i~crease the ultimate recovery of oil orgas or prevent the waste of all or gas produced from said land or from any umt area ot whIch the said land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such con-

by this lease capable of prOdUCing oil or gas in paying quantities.

ditions as wil prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, inclUding conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered

31. ASSIGNMENT&. This lease or any undivided interest herein may with the approval of Lessor !,e. assigned or s.ubleased as to said land or anyone or more legal subdiviSions included therein, or any separate and distinct ~C?ne or geOlogical horizon underli'ing said land or such one or more legal subdivisions, to any person or I;ersons qualified to hpld a Icase. No transfer of any interest in thk lease including assignments of working or royalty interests. an~ opcrating agreements and subleases shall be bindIng upon Lessor unless approved by Lessor., Lessee sha~l remain liable.
for all Obligations under this lease accruing prior to the approval of such transfer. Approt.al of transfer of this lease

with Ihe regulations and must be fied within ninety days after the date of final e~ecution of the inst:ume~t of transfer. Where a transfer is made of all or a part of Lessee's interest in and to a portion of the acreage In said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessoi:" be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITrZATION. Whcnever determined and certified bv Lessor to be necessary or advisable in the public interest lor the purpose of proerly conserving the natural resources of any oil or gas pool, field or like area or any part thereof. which includes or underlies said land or any part thereof. Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lesor including lands belonging to the United States and with others, jOintly or separately, in collectively adopting and operatinjt under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessr subscri~e t? s~ch a c~opera!ve or unit agreement, which agreement shall be reasn~ble and shall adequately prot~ct all parties in interest InCluding Lessor. Lessor may with the consent of Lessee establish. alter. change, or revoke dnIllng, prOducing, rental. minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with rE'erence to this lease with the like consent of Lessee in connectioii with the institution and operation of any such cooperative or unit agreement as Lessr may detennne to be
of Lessee and with the atlproval of Lessor be segregated into a separate and distinct lease haVing the same efective date as this lease. . - ...._
lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Leor, of any separate
neccsSc-iry or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and.l upon the request.

Lessor, where the transfer .covers any distinct zone or geological horizon, or (3) where Lessor determines that the discretion of best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply

or an interest therein wil not be denied except (1) for failure to comply with the regulations (2) in the.

33. SURRENDER. Lessee may at any time make and fie with Lessor a written surrender of all rights under this

and distinct Zone or geological horizon underlyin~ said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of flUng subject to the continued obligations of Lessee and his surety to

make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered
trom all other Obligations accrued or to accrue under this lease with respet to the surrendered lands. zones. or horizons.
zones or horizons in condition satisfactory to Lessr for suspensIon or abandonment; thereupon. Lessee shall be released

34. DEFAUL'l'; TERI\HNATJOl"~. Whenever Le :fils LO comply with an). of the provisions of lhis lease other lhan the Pdyinem-if reli.i.lli.. Lei;ee fais withn sixty days after written notice ot such default to commence to remedy
and thereafter prosecute dilgently opentfons to remedy such default, Ler may cancel ths lease if at that tle

a well capable of producing oil or gas in payig quantities. this lease may be cancelled only by judicial proceedgs. In the eve.it of any cancellation under ths paragraph, Lee shall have the right to retain under this lease any and al

there is no well on said ln ~apable of producin: oil or gas in paying quantites. If at such time there is on sad land

such retaed well or wells. 35. EXCESS ARE.:. If for any reaSIJD said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, thi, lease shall not be void but the acreage ihcluded in said land shall be reduced to
If such a surrendel' is. not filed within such sixy days Lessor may terminate thi lease as to the acreage that mus be eliLessee stating the amount of acreage that must be eliated, Lessee may withn sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreagetbatmust be elimiated.

or wells and such ri!!hts of waJ' through said land as may be reasonably necesary to enable Lessee to dril and operate

driling or producing well as to which no default exits together with a parcel of land surroundig each such weII

the pen.tted maximum. Wnenever Lessor deterines that th .lease so exceeds the Pertted acreage and notitei

inated by maUingnotice of such lermin:ition to Leee deSCribing tie parcel or parcels eliminated. Such a notice shal
have the effect ot. ternating this lease as to the parcel or parcels descrbed in such notice

or portions thereo:i in good order and conditon.

36. RIGHTS ON TEMiNATION. Upon the exiration or earlier termination of this lease as to aU or any portion of said lands, Lessee shll have the privilege at any time ""ithin a period of six months therea!ter, or such exensIon thereof as may be granted by Le.c:or, of removing frqm said land or portion thereof all machinery. equipment, tools. and materials other thun improvements needed for producing wells. Any material. tools. applianc~s. machinery, stctures, and equioment subjcc~ to removal ai; abo\'e .provided which are allowed to remain on said land or portion thereot . shall become the property of Lessor upon expiration .of such period; provided, that. Lessee shal~ remove any and all of such properties when so irected by Lesr. Stibject to the foregoing, Lessee shall deliver up said lands or such portion

constitute an interes. property in said land.

37. INTE~ il "f~D. It is the intention o:f the parties that the rights vested in Lssee by tlu lease shal

tion which its interest bears to the whole and undh'ded fee.

38. LESSOR INTEREST. It. Lesor own a lesser interest in the oil and gas deposits in said land than the entire and undivided fee simple estate. then the royaltes and rentals herein provided shall be paid Lesor only in the propor-

39. CONDITIONAL LEASE. If all or a part of said land is land1that has been selected by the Lessor under lawii this lease Is a conditional lease as provided by law until such pate,lt become effeiitive. If 1.or any reason such a selection is not :finally approved or such a patent does not become effective, and .rental. royalty or minimum royaty pay_ ments made to Lessor under this lease wil not be refunded. 40. DIlILLING OPERATIONS. As used in this lease. "drillng operations" mean any work or actual operations undertaken. or commenced in good faith for the purose of carrying out .any. of the rights. privileges or duties of L~ssee under this lease, followed dilgently and ln due course by the constuction of a road or derrick and/or other necesar .sctures for the driling of an oil or gas well, and by the acj;al opeation of driling in the ground. Any such work or operations preliminary to driling in the ground may pe tiderken either on said iand or in the viiiinity of said land in any order Lessee shall see fit. 40. (a) ACTUAL DP..LIG. As used in this lease, '~actual drling" means iiny and all operations necessary or convenient to the driling of II well in the .ground after the first driling or spUdding with equipment. of suficient sie
of the United States granting lands to Lessor, but such land has nt been patented to Lessor by the United States, then
and capacity to dril to the total depth proposed for the welL.

this lease unless otherv,'Ise specified.

41. RULES AND REGULATI0NS. k used in this lease "r.egulations" mean the applcable and valid oil and gas leasing regulations of the Commissioner o~ the Department of Natural Resources in effect on the effective date of

istered or certified mail. return receipt requested. addressd as follows: .

42. INTERPRETATION. As iised in this lease words which are defined in the regulations have the meaning 35signed by such definition except where the context clearly requires a di;ferent meaning. The paragraph headings are not a part of this lease and are insertea only for convenence. 43. NOTICES. Any notice required or permitted under this lease shall be in Writng and shaLl be given by reg-

To Lessor: To Lessee: Director. Division of Lands Jl.r-lJQll...QJ1..Q.Qr.iEAl.I,X...QE...(!lL-;iFORNL4

~l~t~i~/LliAl~~~ue .g.Q.5..P~1lg.L:tT-.~:L............ Anchorage,when delivered A!!.n-Q:l~~....~~k~L.._......... Alaska to the 1.oregoing address. Either part may change the addres Any such notice shaH be deemed given
contained in this lease shall extend to and be binding upon the heirs, exectors, administators, successors. or assgns

to which such notices are to be sent, by a notice given in accordance with thi paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease. the covenants. conditions. and agreements

01 Lessor and Lesee.

45. WIDLIFE STIPULATIONS. This lease is subject to sich stipulations as are attached. IN WITSS WHEEOF the parties have exected this lease.

By ~~::~~~:~~RI~~~:=::::=::
..._..._--...._..A:tj,Q.:r.~Y-.-=.:jD.::~-.j;...........__......_._

STA'lE OF ALASKA
By;2........_. ...~~~~...C.:... .: ..~ '.;..

By . .~,-:~Xe:__~.L(.p~;:.r.;..-"~:_.........
~ Division Manager LESSEE
THE z:. HI..OIL..COMAni....._._......s"'._:-........._ NITED STATES OF AMERICA- )

...l.~.c ~ ~ .,....~

~orris c. ~a!tke) Jr.

Tite. .......;i;ia(!~lsu;;:if.k.r,..._......._. LESSOR

STATE OF ALASKA ~ ".0. t: -, .

Thl.. certlfle.. that on the..d.day or~.l..g berore me, a notary pUblIc In and tor the State ot Alaska, duly
coin:nl"sloned and sw"rn. personally ."Jlenr;o._.._._._._....._..._.~Q._._.._9.:..~~..~....___ to me known and known to me to be

thE: person described in and 'Who executed ttie foregOing lease on bth'!ii or the S~te of b-i~B. 'R~ ot the DIVision ot Lands. Depart-

m.nt ot Natural Eesou.c.... or his authorb;ed a:en:. The snid......._.._~O~.:..~~_~::.._L_:......__...___...._ex.cuted ..nld leae In my

.N..tural ~ U.~~&. i _

or Nomr"l R'~n","n... or hi.. authorized a:rent. and has authority pursunnt to law 10 execute the tore.iolng I.aoe as such ~or authorized ::;;:;'t~"'ei~eha~t ::'Ilt~t~~~;t~.. fh;'i,;.~~n. sirtl~fu~~~:~~II~~dnj;~~i':~ l~e~~~s~fl':~I~la".t. ,,~ "l3~iih~'fiY~r~~~ "o1dahn"J..:'v:;.e;t~;~tt~i
_..~_ir~~:.......::.._..:..~.i:.~.~:~~:.~.~..~:.~::t~::~::::::I:t:..b;:: AJas1t~. My CommIssIon exoir.. 9 - ~ 7- L r

presence ""d. ntter behlt; duly sworn according to law, slnlr.d to me under oath that be Is 'tli. Dl. .H.. ur ih. DivisIon or Land... Dep:itmeni

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nu~ Jk'If:U.:1I itaiill:
(l) ObteJniho ",r'ut''' o,lpruvnl 1)( 'hi: Ililirtlwnt nl HALvE'11

Rli8llurcr.1 lor tlt,,- li.C'aUuu "11'" type 01 ..,.ch lilruC'r)'r~ bcforo fe h rr.cted
Oil tldf! or liul.llCKed lAnd. .'I~iirrlJl:..t ,,~. h~J. (III IsppJ Stlttlonll' r.,r "yen

.truC'lure:t "".II b.. lakL.ii wIth'.. 30 iJatyll QI r"C'eJpt 01 Auch "ppllc.clcm..

(1) Appoint ...,d ih.diitdn nt all tIN''' iJrlnn ithu coniitructlon

ur uptir.-tJonl un rJllt Util, iind UI"'L'I'K"" l.fnd. " loeet '51rnt "pm who,. IDsy

b. iieryuiJ wricc"n oriliirll Dr Ili)Uei=. r""pt~cr.nJJ tilU.re CoiulLnud Sn tll~R.

IitJpuhtlunlt Mud tn pruvliJ~ LJ.* CUIlJddJnar 01 tl.e SLlle' of Aliiik. Depllct-

lOlinr: or Hic"r.) Kt:ouun:ell "lth II'*' nn~ lUlC' Iddr....1i .ut .."..It nJlent.
()) Aaura. rhllt .11 Clhiftci-urUon or de'lltll)~ni iict!vltle"

c.rrleil 1#1\ undiir ihe lr.ulll: .11.11 br culidliC"I'c,.d In ii IDDnnUI' lIf1tllt",c:r.)ry co

tha Sc:.tl' of 'lniikii De.'p..rhil-nt ui HuturaJ Hieiinun:t-. wi th ilue reM.rd lor

t,..h ii..c. gUNn, Ctllil&!I.VdcJuli. "n1l "hl.l) .It'JIiil' proll'l l1llotlK.\'li In drtJl1nJ(
noiJ C"fJpJ~lJlia wcill...

(4) lUlll aU iuJe'lUlil., h1"'UUL pre-vuiil It'll c()ntl'GI .lluipt~nt And

uk.: uther "",..I,y ",i.ii.iiic. pruv"hnl 'or i., thii u" aiill a." c:onlJa=rvac:lon
re&uJliilulll llt' unJ&!llid lly th... Cmi..J.HIDn~r of thL. Sliitc- of AI,,"k. Oep"ri.lnf)l
U( ll"LUr ". kl:if.uui CI'N.

()) n..lnt.lli. iiII..h...... VlhCii,,1l 01" ~Illrrt&:,. In hucb n ,"IUlO~r th,.t

1111 ul l by-pruductw ,uiiy IIL ",....111.11 rhrni'Poh ...IIJJi~I.: Ilnd J):ipn6rtd or in It

I1nlit'1' Il"'~hr"rt."'ry fu 'hi: SI.Ie' It' AJ,,"k. IJ"I'..rt"i.nt tir N.harnl R.:.ource.

\l1i:b alii. rlllJurd tu thulr ,.llerr. .)i ihili ai'" Kn~.

(6) k'hi'n..r.u III.. SI:..1 ~ "f AIAHklt lur AO)' lOa. or dlllnHI! to ttab
IIC HUI*' r'V"Lllll"l; Ir"IM flny UJ'~"'Hr In".. OIl' ...C)hlftCU,.tJOD und.r ChI,. Jellll,e Or

11;.~ltil1l( 'rlill iiuy vlul.ltlllh "r Dr ...lIl1r~ Lu (:~ply vlth n01 viilid I,UL.
lleS")'U Jun. .., 'iirll OJ flny ,."1'. 'i:.iblii 1"U..r.a "lli" '.,."ee'S rCdpon.'bli'ty
..hIiJI iil.ll C'....1I..11.IIDH "\:1.. I.' iiml":.'t,.,, ur Ii" ..~ie't,.. l'mpJnyeea. and con..
Ii.oceiii.ii.

. 1 )'f"/:) / . " V' 11. .l-.l.l~. -it ,,'.

lbll I.. Ho1dD\lC'th. Coh.loner

Otp.risnnt of Hiituc.i R~."nrC'.

--

HMlt iu CmIPf;ITIV OfL AND CAS LEAE FORi! DL-l

nij,s erratum nppl1ea to the correction5 of three typo~~l1pbtcDl error" In the State DC AIHsk.. Coinhecttlve otl and Ca, LeAse FDr... DL-l. tll of which re noted in Provbton 5. .ETENSION BY UNIT PRODUCTION. iind the one \lhlchlSs noted in Provhln 39. CONDITIONAL LEASE. The. present

provisiona lre hereby rbdlfled by chiiniiJn$; the \.rd "acUo"" In Un.

nugeber fIve (5). vord nuinber leurlteen (4) tn PrOYiln 5 to be "ActJveOl; by cMn8tn~ the 'Urd iino", In" H.ole number nine (9). \lrd nWlber twenty (20)

four (4). word nuiiber lourte~" (14) In Provhlon 39 to be "iiny.t.

the "bove. imd w1Jl theC"~Core rend:tJf foll",s:

tn ProvIs1on S to be I!iiny"; -lud by C'han~j.nl. the \lord "nndl. In lIne niimber

Provision 5 and 'rou1510n 39 "re herehy 'imended to IncornlJrllttt

5. i:SION BY UNIT PRODUCTION eft) This lease .hall vl.thout

application be extended bey'ond .It; pr1iry terl if upon or prio'l to the

expiration d8te of 8uch 'term the lease 11 committed to a unit. ..srelrnnt approved or prescribed &y Les~l-or .. provided ,In the rl:gulat1on8.. produc.tlon or oU or &8'. Is had tn paying quant1tli8 undltr the agreetDt. IlZld a portlon of uch product.on fa .Iloc.-'ed Co said land under the aKree~t.. In such
'n::rei!~rrt ~r"d ".,cilve" prod.JC:Uon undeT said agreement- b 8_llocated to said land; (b) The COlRbliJoner may. in bie d1acretton pro.vf.de for the'

even,t tlila leaae shall continue in effect eo iori~ 8. it relllna subject to 3uch
,extenllJdn of the 'terii of thie le,ne.. 1f such least' i. on the expiration date
thereof included In an .ppro\r4d unit pl.n or if it j. I.ncluded in . prograii of .econdairy recovery operation desilgned to bring .bout or restore prodc.. tlO". provided. hO\Ierl th.t If rlny le.ue .or portion ther~o is el:hdnated

operatlon.s ar., be1nR conducted thereon ami 3D lORA rhered,ter ois 011 O~ i.a3 19 produced tn ""71"3 qultn t (t J 1:3 .

t.oue in full force and efect for nJnety (90) ;iaya frori the date of out:h el,hdnitlon or terrdnat:on God 80 long thereafter sa dE'lJJnjt or rt:drllllns;
)9~ CODITIONAL 1.SL 11 all or _ li/U.t u1' 3.id !.rid 1s iand,

fi-ofA .uch unit plan Dr rt!CDvery progr.m. 01 1 such untt phn or recovery prog,i-i- 19 terlDinated. then u!!" ouch lease Dr poreton thereof .hall COI.-

that has bt"eh selected by the le:t.uc under )a"" of th~ UnIted State, Krntln~ bods Co 1.1:38or. bllt .uch land hll3 not been patented to Les_or by the
UlIJ(C'd Stnte:r. the" rhl. lese h .. condh:Jonnl IcoRe ad! provided by law until such i..cent b~c:um etfectl.vl!. II ror an)' re..on iluch & 8election 11

royalty or ml.nblU' cuy"lty pliinent. inadce to Le:uor under thb lea.e 'Wtll not
be refunded..

not lnally "pproved DC :iuch " patent does not bee-oiiie ~llecc:1ve. ii!.,. retal.

, "1/.. .) i
1'". t.iil .! .i.i.i .'.. -it. .

Phll It. lJo!d:nolr'tb. Conla" loner

Deparrment of lbtucAI R~30uC(:e'

lo.coe .EO' Bell. Director Divb Ion of Lendii

:ir.(1-' t.6u.L

THE

OF POOLING AND UNITIZATION THIR EDITION

LAW

Kf
1&63

/(73

VOLUM 1
Bruce M. Krer
Madx Professor of Law Emeritus

Lubbock. Texa .
Patrick H. Marn.

Tex Tech University School a/Law

Campanile Professor of Mineral Law Paul M. Heb.t:rl Law Center . . Louisiana State Universit Baton Rouge,. Lquisiana

2008.
OJ':' . Filed Through: RELEASE NO. 38 ocOBER 2008

.. LexisNexis.

EXHI.'BIT F

6-9

REGULATORY PROGRAMS

6.o

All of the compulsory poling sttutes are discussed in greater later in

Chapters.

11-15.

6.02 Compulsory Unitization Statutes

Unitization, as opposed to pooling, is the consolidation of mineral or

.working interests covering all or part of a common source of supply. Within

the unitized area there may be many spacing, drilingi or pooled units. Unitizationi as discussed earlier, is designed to maximize production by draining the reservoir utilzing the best engineering techniques efficiently' that are economically feasible. While unitization in many cases is in the
best interests of all of the parties, voluntary unitization of all the owners has ~en difficult to attain.22 As a result, all producing states, except for Texas, have adopted a compulsory unitization statute that allows the state conservation age~cy to unitize minority interess who have chosen not to voluntarily

join in a unit agreement.23 Unlike compulsory pooling statutesi which often

encompass only one statutory provision, compulsory unitization statutes cover more sections and. are lengthier and more complete. As with the compulsory pooHng statutes, the compulsory unitization process is initiated
by.the submission to the state conservation agency of detailed plan.24 In

some statesi compulsory unitization can be used for specific purposes onlyi such as recycling operations or secondary recovery operations; l1 but the
UThe problems Inherent in getting voluntary unitization of a common source of supply are shown quite dearly in Western. Gulf Oil Co. v. Superior Oil Co., 92 Cal. App. 2d 299, 20& P .2d 944 (1949), where a voluntary plan that would produce an additional $1 &6 milion
in oil and gas could not get unanimous approval by all of the owners in the proposed unitized

area. 23 For some representative compulsory unitization statutes, see, e.g, ArK. Code Aiin. 15-72-308 to 15-72-315; Cat Pub. Res. Cod 3640 et se.; Kan. Stat. Ann. 55-1301

.et seq.; La. Rev. Stat. Ann. 30:5; Miss. Cod Ann. 53.3-7; N.M. Stat. Ann. 70-7-1 et se.; Okla. Stat. Ann. tit. 52, 287.1 et se.; Wyo. Stat. 30.5-110. Texas, although lacking in a compulsory unitization statute, has accomplished many of the statutory goals by using innovative administrative orders relating to poolwide development. For a thorough history of the Railroad Commission's surreptitious compulsory

unitization program, and the political reasons for the lack of a compulsory unitization statute,
. ~e j. Weaver, Unitzation of Oil and Gas Fields in Texas: A Study (0 Legislative, Administrative and Judicial policies (198&).

24\n most states the minimum requirements for the petition are set out In great detail. Thes normally include a list of persons having interests in the unitized area, a unitization and unit
operating agreement, an accurate map, and substantial geological and engineering data. Se,

e.g., Okla. Stat. Ann. tit. 52, 287.3 (1969).

2l See, e.g., Ca!. Pub. Res. Cod 3643(c); Fla. Stat. Ann. 377.28.

~_"Co.1""1

lRL2-llm PI.oI5)

 6.02

POLING AN UNITATION

6-10

majority of sttes authorize compulsory unitization in order to prevent waste,. increase the ultimate amount of hydrocarbons recovered, avoid the driling of unnecessary wells, and/or protect correlative rights.- The North Dakota
compulsory unitization law provides a goo example of broad authorization

to force-unitize. It states in part:

Th~ legislative assembly finds and determines that it is desirable and

necessary, under the circumstances and for the purposes hereinafter set out, to authorize and provide for unitized management, operation,
and further development of the oil and gas properties to which .secions

38-08-09.1 through 38-08-09.16 are applicable, to the end that a

greater ultimate recovery of oil and gas may be had therefrom, waste

prevented, the drilling of unnecessary wells eliminated, and the correlative rights of th~ owners ina fuller and more beneficial oil and gas nghts to be proteced.27 enjoy~ent of the.
One of the requirements that must be met is the identification of the common source of supply, which is going to be unitized either partially or in its entirety. In most cases, th~ state conservation agency must make a
specific.finding that a common source of supply exist and that the unitized
28
area encompasses that common source.

Problems .ar.se with different horizontal strata; each separate strata

normally meets the .definition of a common source of supply. Unless there

is a commingling of the differ~nt producing sands or strata, a separate

compulsory unitization order is required for each of the sands. In Jones Oil Co. v. Corporation Commission,29 the Corporation Commission authorized a compulsory unitization of multiple sands, based on evidence in the record that tne sands were commingled and that production from those sands was also commingled. The Oklahoma Supreme Court upheid the order because 30
of the proof of the commingled production.

-Se, e.g., Alaska Stat. 31.05.110(a); N.D. Cent. Code 38-08-09.1.

27 N.D. Cent. Code 38-08-9.1.

:1 Okla. StaL Ann. tit. 52, 287.4 (1969) provides: Each unit and unit area shall be limited to all or a portion of a single common source of supply. Only so much of a common source of supply as bas been defined and detemiined
to be prOductive of oil and gs by ;:ctual opetions may be so included within the unit area.

aD Jones Oil Co. v. Corporation Commission, 382 P.2d 751, 18 O.&G.R. 1041 (Okla.), cer. denied, 375 u.s. 931,19 O.&G.R. 32 (1963).
30 See also Palmer

Oil Corp. v. Philips Petroleum Co., 204 Okla. 543, 231 p.id 977 (1951),

appal dismissed sub nom. Palmer Oil Corp. v. Amerada Petroleum Corp., 343 U.s. 390,

1 O.&G.R. 676 (1952). .

(Maw Bc & ~. !n)

(R-1J 1'.4S5)

6-11

REULATORY PROGRAMS

6.02

Because .compulsory unitization is achieved through the issuance ~~

of an

agency ordel the interphase between the public interest and the private parties is oftentimes unclear. In the first decision in Frey v. Amoco Production Ca.,30.i the plaintiff sought to apply the Louisiana Public Record Act30.2 to

Amoco, the unit operator of the Morganza Field since Amoco had been
designated unit operator by virtue of a Commissioner of c:onservation order. Th plaintiff was seeking information regarding production figures, production costs and royalty payments. The court found that Amoco's status as a

stat-designate unit operator did not make it either a "public body" or a "custodian" of public records under the Act. The later iterations of Frey
relating to the lessee's obligations to pay royalty on take-or-pay or settlement monies did not discuss the public records issue.
With few exceptions,31. compulsory unitization statutes require the applI-

cants for an order to show that a minimum percentage of the working interest . owners within the pmposed unitized area have consented to the unit agreement. Many states require approval of the unitization plan by owners of 75 percent of the working i.nte.rest before the state conservation agency wil force-uniti.ie the remaining interests, although other percentages range from 62.5 percent in Nevada to 85 percent in Mississippi.32 Under certin

circumstances,. the minimum percentage approval requirement. may be

lowered if certain requirements are met. \AJoming, for example, lowers the minimum perentage from 80 to 75 percent under certain conditions.33
The Tennessee compulsory unitization. statute is discussed at great length
. 30.1 Frey v. Amoco Production Co., 741 F. Supp. 601 (B.D. La. l990), i.ev'd 011 other groui
95 i F.2d 67, 113 O.&G.R..475 (5th Cir. 1992), certified question ansered, i l3 O.&G.R. 478, 503
So. 2d 166 (L. 1992).

302 La. Rev. SiaL 44:1 et seq. .

31 See. e.g., Alaska Stat. 31.05.ilO(d); Wash. Rev. Cod 78.52.330 et set.
32 Oklalioma provides a typical example of how the minimum ligur is computed The statute
provides in par:

. No order of the Commission creating a unit . . . shall be effective unless and until the

plan of unitization h.as ben signed, or in wnling ratified or aproved by lessees of record
of net less than sixty-three per cent (63%) of the unit area affectd thereby and by owners of record oi not less than sixt-three percent (63%) (exclusive of royalty interests owned by lesses or by subsidiaries of any lessee) of the normal one-eighlh (1/8) royalty interest in

Nevada prvides the low minimum r~.qjrement of 62-1/2 percet, Nev. Rev. StaL 522.0834(1)(a),
while Mississippi provides the high ilnimum requirement of 8S percnt. Miss. ('..e Ann.

53-3-107. .
and to th unit area. . . Okla. Stat. Ann. tit. 52, 287.5.

33 Gilmore v. Oil and Gas Conseralion Commission, 642 P.2d 773, 75 O.&G.R. 172 (Wyo.

1982). .
(Rl. 31.llV1 r.bAS5)

 6.02

POOLING AND UNITION

6-12

in Kidd v. Jarvis Drillng, Inc.34 While the statutory provisions for compulsory

unitization are quite short and general,3l the Tennessee Oil and Gas Board has promulgated regulations that fill in the blanks. Before the Board may
issue a compulsory unitization order, it must find that: 'unitization (1) is necessary to conserve the State/s natural resources, (2) wil prevent waste of oil and gas and the driling of unnecessary wells, (3) wil appreciably increase the ultimate recovery of oil and gas from the affeced poot (4) is economi-

cally feasible, and (5) wil protect the correlative rights of both landowners. and owners of mineral interests."34 Furthermore, the Board must find that the
unitization plan .assures that the owners of the separate tracts receive their just and equitale share of the recoverable oil and. that the cost of production

is proportionately allocated.37 Somewhat unusually for compulsory unitization, the Board imposes a risk penalty of between 150 and 350% for those working interest or unleased. mineral owners who do not consent to pay their
allocble .shart of the costs of the unitized projec.38 tn addition, the Board

requires a public hearing prior to the issuance of a compulsory unitzation

order.
The compi..lsory unitization' process is discussed at length in Chapter 18. Care must be taken to review the requirements of tlie states individually, as

they differ in the amount of information that must be provic!ed to tpe state

conservation agency, which agency use that information as part of its

required findings when it approves or disapproves the compulsory unitization order..

34 200 Tenn. ApI? LEXI 96 (fenn. Ct. App.).

35 Teiin.Code Ann. 6O-1-202(aX4)(N).

36 Tenn. Compo R. & Regs. 1045-1-.0t(1)(a).

37 Tenn. Compo R. & Regs. 1045-1-.02), (d).

38 Tenn. Compo R. & Regs. 104-49-.07. lO40-5-1-.02(d).

'.Hd. 31.101001 "",,,,5)

CHAPTER 17

Voluntary Unitization

SYNOPSIS
17.01

Preliminary MatterThe Fesibilty of the Project

. The Voluntary Ageement-The Major Provisions
(1) The Purposes of Unitization

17.02

(2J Defiitions
(3) Unit Creation.and Effect

(4) Desgnation and Powers of Unit Operator

IS1" The Partcipation formula

(a) Th Initial Partcipation formula (b) Subsquent Chnges in Allocation

(6J Effective Dates and Termination

(7 Surace Use Rights

(8J Subsequent Ratication and Risk Penalties

(9) Disposition of Producton
(10) Royalty Obligations

(11) Environmental Liability

(12) Elecions to Participate in Driling Opertions

(13) Operator's Lien

(14j Indemnifcation
(iSl Exnsion or Contraction of the Unit Area
(16) Preferentil Right to Purchase

17.03

Statutory Approval
(1 Texas

(21 Uta
(31 Wyoming

17-1

(Rei. 37.1Ul00 I'M55)

 17.01

POLING AN UNITIZION

17-2

17.01 Preliminar Matters-The Feasbility of the Project

The creation of a voluntary unit is a diffcult and prolonged matter.i The

more parties who own interest within th unit the more diffcult it is to
secure final agreement on all of the vital terms of the unitization agreement
and the unit operating agreement. Before unitization can be achieved,

substantial amounts of geological, geophysical, economic, fiiiancial, and other data must be collected and digesed to see if the unitization project is feasible.

. The. unitization idea may come from a petroleum geologist, a reservoir engineer, or other offcial of a working interest owner. In some cases the impetus for voluntary unitization agreements has come from external
sources such as a state cons~rvation agency. The Railroad Commission's l!se

of "no-flare" orders to encourage voluntary unitization of several fields in Texas has been well documented.2 However, in most cases, it wil be the working interest owners who wil initiate the discussion of the need for unitization. Following the informal discussions, if a consensus appears
showing an interest in the concept of unitization, then a more formalized . structure ma)" be created. At this time all working interest owners, regardless
of size, should bE! contacted becuse it is important to control as much of the
1 The literature on volunta unition is volumious. See. e.g., 6 P. Main & B. Iainer.

Willams & Meyer Oil and Ga Law. 921.-921.6 (LexisNexis Mattw Bende) lberete
Williams & Meyers Oi and Gas Law 1; R. Sullvan, Hanbok of on and Gas Law. 337-431 (1955);
. Dogget. Practical Legal.Problems Encountered in the Fonnaion,. Operaton 0111 Dissolutin of

Fieldwid Oil an Gas Units, I, II & l1. 16 Okla. L. Rev. I. 124.189 (1963. 1964); Kirk, Conten.
of Royqlty Owners' and Operators' Unitization Agreements. 3 Sw. Legal Fdn. Oi & Ga Inst. 19

(1952); Roark, Matters of Mutual C01em to the Lawyer and Engineer li Iie Unitization
Agreement. 7 Sw. Legal Fda. Oil & Gas lnst. 275 (1956); Willams. Th Neg.oriaiion and

Preparaono/Unjtization Agreements, I Sw. Legal Fdn. Oil & Ga Inst 43 (1949); Fred E. Shantz.
La's ConiributiD in a C02 Flood Project. 45 Laman. 57-63 (Mar/iAprl 200).

For an excellent analysis of unitizaon outside of the United Stas seeJacueline Lan Weaver

& David Asmus. Unitizing Oil and Gas Fields Aroun the World: A Comparative Analysis of Narional Laws and Private Contracts, 44 Rocky Mln. Min. L. Fdn. J. 35 (2007).
2 See generally J. Weaver. Unitizaion of Oil and Gas Fields iii Texa; A Study of Legislative.
Administ..uive and Judicial Policks (1986). For other instances in which UJe courts have viewed

Stat agencies as encouraging voluntar unitization agreements. see Dobson v. Arkaas Oil & Gas Conu'n, 218 Ark. 160, 235 S.W.2d 33 (1950); Union Pacific R.R. v. Oil & Gas Conservation
Comnln, 131 Colo. 528. 284 P.2d 242.4 O.&G.R. ii79 (1955); Mobil Oil Corp. v. Slaie Corp. 227 Kan.594. 660.&G.R. 19.608 P.2d 1325 (1980); Republic Naiuml Gas Co. v. Baker. Comm'n,

197 F.2d 647, 1 O.&GK 1142 (lOth Cir. 1952); Halbouiy v. Rairoad COnu'D. 163 Tex. 417. 5
Te;i. Sup. Ct. J. 246, 357 S.W.2d 364. 16 O.&G.R. 788 (1962), cerro denied sub nom. Dilon v. Halbouty, 371 U.S. 888, 83 S. Ct 185,9 LEd 2d 122. 17 O.&G.R. 173 (1962).

'JM.3.I0fOU7 l'b.55)

17-2.1

VOLUNTARY UNITTION

17.01

;;:.

unit area as possible in order to receive the maximum benefits.3

When unitization moves from the initial decison phase, a technical committee is usually created in order to develop the necessary geological and technical information that will be needed to make the ultimate decisions
regarding the unit
(Tex continued on page 17-3)

3 See generally. Wiliams, The NegotiatUJn & Preparation of UnitiZttUJn Agreements, J Sw.

Legal Fdn. Oil &. Gas. JnsL 43, 72-76 (1949) for th thoughts of lI expeence oil-company
attoniey on th~ neotiation and pi:eunitzaon agreement pr.oc.

(ReL 37-1O!01 lubA~~)

17-3

VOLUNARY UNmZATION

17.01

agreement. There may be several subcommittees, including a

legal subcommittee, to deal with any of the issues that might arise as to the statutory requirements for voluntary unitization
approval or compulsory unitization. In .addition, the inclusion

and contents of pooling or unitization clauses in the leases wil

also have to be checked, because hold-out royalty owners

create special problems for unit operations.

In due time, royally owners need to be contacted and informed about the proposed unitization. Even though the les-

see might hold the power to commit those interests to the

unit, the royalty owner may stil need to be informed:' Informed royalty owners are less likely to hold out or to fight the
proposed unitization. Again, th~ fewer the holdouts, the more

effcient the unit operations wil be. .

Although there is some debate about how many different types of unitization agreements there are, the authors agree

th~t unitization agreements are primarily either of the development type or the operational type.' The development unit4 See Amoco Producion Co. v. Jacobs, 746 F.2d 1394, 83 O.&G.R. 82 Ooth Cir. 1984), in which the Tenth Circuit in a cryptic and poorly wrtten . opinion suggests that a lessee who holds the power to uo.itize the lessors interest must seek out the lessor, inform him or her of the negotiations and
.

the terms of the proposed unitizatin agreement, and solicit his or her inpui.
in order to meet the lessee's good-faith obligations under the unitization

clause. .

Most leass do nol. authorize the fessee to unitze the lessor's interest. . There are some leas~ fonns in use in the Rocky Mountain area, however, that do empower the lesse to unitize the royalty interest. S In Kirk, .Contents of Royalty Owers' and Operators' Unitization Agreements,'! 3 Sw. Lesal Fdn Oil & Ga5 Inst. 19, 24-29 (1952), he describes four

different type of unit plans. They are (1) secondary recovery, (2) new developed pool, (3) partially develope pool, and (4) Benton. The secondary recovery plan is self-explanatory; the plan is designed to achieve some form

of enhanced recovery project that cannot take place without unit opera....._w

tions. The new developed pool plan Is one in which a large number of wells have been drilled according to the appropriate spacing rules, and the plan

wil be designed primarily to prevent a loss of reservoir pressure so that primary production techniques can be utilzed to the greatest extent possible. Th partially developed pool plan occurs even earlier, prior to the full characteristics and nature of tlie reservoir becoming known. Again, the purpose
is to extend primary production effciencies through the overall maintenance
of resrvoir pressure. The.Benton Plan provides for unitization immediately

afer a pool is discovered and is much like the federal exploratory unit in that, as new wells are drilled, participating areas expand and more owners share in the production.
(ReI. 18-10/89 Pub.4SS)

 .or

POOLINC AND UNITIZATION

17-4

ization plan presumes early unitization. for the purpose of per.t milling. rapid but systematic development of a reservoir. Some

may argue that the exploratory unit should be treated differ-

ently than other types of developmental units, but the .authors

feel that the differences are somewhat minimat essentially dealing with the greater lack of information on the reservoir.
The exploratory unit merely gives the engineers and geologists
. more lead time to most effciently drain the reservoir, without

having to. worry about individual leasehold operations. The operational unit is one designed to permit some conservation m~asures .to be applied to the reservoir and usually occurs at
or .near the end of the primary production regime.' In either event,' royalty- and working-interest owners wil be attempting to negotiate a unit or unitization agreement that wil allow for the unitized development of all or part of the common sour.ce of supply. lnaddtion, the working-interest owners wil be negotiating a unit operating agreement, which wil cover the allocation of driling and development costs, as well as the delegation ()f decision-maki.ng power to one or more of the working-int.erest owners. Model-unit agreements ~nd unit-operating

agreements ~re foUnd. in Volume 3 infra.i

Obviously the. financial and geological information and fore- . casts that go .into the preliminary negotiations (or unitization

are essential for its ultimate success. Developmental units wil

have to rely on forecasts as well as information since; by defi-

nition, these types of unitization agreements occur before all

. of the data about the reservoir and its characteristics are well

known. The operational unit agreement stil requires forecasts, not about the. underground conditions that are fairly well known, but about the impact of the enhanced recovery operation that is being planned to increase or maintain production

levels from the reservoir. In many cases, the various working-interest owners. create some form of working committee
that develops the information and acts as a conduit for infor-

mation from the individual operators. It allows for input into

'Roark, "Matters of Mutual Concer to the lawyer & Engineer in the Unitiztion Ageement,' 7 Sw: Legal fdn Oil & Gas Inst. 275, 276-277 (1956).

7 Further examples of model-unit and unit-operating ageements can be

found in 7 H. Wiliams & C. Meyers, Oil & Gas Law 920.1 et seq. (1988).
(RtlI8-10/89 Pub 45S)

II

17-5

VOLUNTARY UNITIZA nON

17.01

l,'

the decision-making process from all affected parties, rather than the major owners in the field.

A major concern about the ultimate decision to unitize has

to be the extent of the area to be unitized. In most cases, the

proponent of the unitization wl have preliminary diagrams

showing proposed boundaries. Parties to the negotiations may have their own views as to what should be included and what

should be excluded. The geological and financial data may drastically change depending on the configuration of the unit-

ized area. If particular parcels are omitted, the entire enhanced recovery project may be rendered geologically or economically infeasible. Projections and forecasts must be made

based on an accurate prediction of what lands wil be included .within the unit. Owners of essential tracts undoubtedly wil hold out for special benefits since exclusion of their acreage wil be critical to the success or filure of the unit. This is espeCially true of operational units in which the underground. conditions are well known, and the engineers nd petroleum geologists can agree on an optimum enhanced recovery project. In operational units. there is also a tendency to exclude
. ~flank tracts," meaning those tracts that are imm.ediately adja.cent to the outside producing wells.' A problem arises be-

cause these .tracts have not been developed, but they still may have value either because of the reserves they contain or because they may be useful in the "injetion program that is be-

ing planned for the unit. In addition, leaving the flank tracts outside of the unit, may allow them to benefit from the enhanced recovery project that wil take place within the unit
. boundaries.'
The boundaries problem for a developmental and explor~

atory unit are somewhat different. For the true exploratory

unit in which there is little detailed geological information

& See Roark, -Matters of Mutual Concern to the lawyer & Engineer in the

Unitization Agreement/ 7 Sw. Legal Fdn Oil & Gas Inst. 275, 276-279
(1956).

'There is also a problem with an injection program that uses wells near the external boundaries of the unit area, which may damage the adjacent
surface or mineral estate. The problems caused by unitized activities that injure non-unitized lands is discussed at Chapter 23 infra.
rRd 18-1G89 Pub 455)

 17.01

POOUNC AND UNITIZATION

17-6

available, th~ problems are immense.. There are three different

-" ways to attack the boundaries problem for developmental

unit~.lO The first, which is probably the most unsatisfactory, limits the original unit area to the areas immediately surrounding the existing wells. As new wells are driled and attain productive capabilty they are admitted to the unit. This method

has several weaknesses, since there is nothing that can force . the operator of the new wells to join the unit. It also loses the potential of driling the field in the most effcient means possible. The second method is one that has been adopted by the
federal government for the creation of exploratory units on federal oil and gas leases. It The federal exploratory unit. agreement deals. with the lack of information by having a widely in-

clusive unit area boundary bt sharing costs and production

only from participating areas ihat are created when wells

are driled and geological information becomes available. Thus, all of the lands that can be reasonably included in the unit area

are included, although the undrmed.areas neither share in the benefits or cost of unitized production until such time as a
well is driled, confirming the existence or. non-existence of

unitized substances.. The unit agreement in tl)ese cases must be carefully drafted to exclude immediately all barren acreage
from the unit as soon as the evidence points to a lack of unitized substances beneath. the surface..

The third form of development unit is called the Benton

Plan.12 Again the unit area is determined to be as broad as
possible, given the limited geological information. Unlike the

.federal exploratory unit, n the Benton Plan unit, all unitized owners share immediately in the costs and production from the unit rea. This would include undriled parts of the unit.

The possibilty of barren acreage, or acreage that is substantially more or less productive than other tracts, is dealt with by
10 The three methods of unilization are discussed at Roark, "Matters of
Mutual Concern to the lawyer & Engineer in the Unitization Agreemen.t," 7

Sw. Legal Fdn Oil tI Gas Ins;' 275,276-279 (1956). J1 See 16.02 supra. 12 See generally Kirk, .Contents of Royalty Owners' and Operators' UnItization Agreements," 3 Sw Legal Fdn Oil & Gas Inst. '19, 28-29, 52-58
(1952).
IRd.18-10/89 Pub.5S)

11-1

VOLUNARY UNATION

17.01

use of an adjustable participation formula that changes tract alloction as new information is received from the driling program. In addition, the agreement should allow for the exclusion of acreage proven to be barren as soon as that information becomes available. In many cases, the initial participation
formula may be based on surface acreage, changing- in time lo a multi-factor formula that better represents the underground conditions in the unit. 13

While many unitization agreements. were originally designed

to deal with secondary recovery operations, the true benefits of unitization accrue when the unitization comes as early as possible. Ever since A.L Doherty began railng against the abominations of the rule of capture and extollng the benefits of unitization, it has become increasingly clear that the earlier
the unitization the.greater the savings to all parties. In the first

annual meeting of the Oil and Gas Institute of The Southwestern legal Fnur)dation, which was dedicated to the concepts of

pooling and unitization, the following questions were rhetorically posed about the costs of not unitizing or unitizing late in

the game. They stil ring true today: Why launch into a competitive and wasteful program of driling an excessive number of costly wells in a pool,

locted arbitrarily with respect to sunace boundary

lines and having no relation. whatever to reservoir conditions, when from experience in most every unitized pool half as many wells properly and strategically loat-

ed with respect to structure are all that are needed to

produce a greater quantity of oil at approximately the same or an increased rate of production?

Why lay duplicate water, fuel and gas gathering systems, build duplicate warehouses and duplicate everything else when ultimately you plan to unitize and wil
consolidate all such systems and installations?

Why sit by and see the common source of supply

ravaged, watch the dissipation of vital natural reservoir

energyi hear the vented gas as it goes to the air and suf13 See infra 17.02(5) for a discussion of participation formula.

(Rei 18-1(l/89 Pub 455)

 17.01

POOLING AND UNITIZATION

17-8

fer al/ the other disadvantages of competitive cupidity, all with the thought of later going in and, in part nly and at great expense, repairing. damage that should
never have occurred in the first place?

Why wastefully blow gas to the air expecting to later buy.back replacement gas at a high figure?

Why follow a program of pressure depletion, followed by an artificial repressuring of the formation?

Why not adopt a program of unitized pressure maintenance instead, making full use of the natural pressure?

Why wait until much of the rich gas is gone to build

adequate gas proessing nd injection facilities, proba-

bly at a time .when it is no longer economical to do so?

Early unitization permits a coordinated development

and gasoline plant operation.

Why cn:petitively produce edgewater wells or wells close to water, accelerate channeling or create needless problems of-water disposal and pollution when it would
be to the advantage of the reservoir to leave such wells

shut in or to restrictively produce the same in aid of a

possible natural wate:rflood?14

The need for early and equitable unitization agreements is as important today as it was then and as it was in the i 920'5

and 1930's. Unitization agreements are often diffcult to negotiate because of the fractionalized ownership pattern that

plagues the oil and gas industry. The more parties to the
agreement, the more difficult it becomes to reach a universally satisfactory solution to the many problems of unitized rather
. than leasehold development. The following section. reviews

the API Model Unitization Agreement's major provisions as

how best to resolve some of these difficulties. Not all of the

provisions of a unit agreement are discussed and the readers

are encouraged to look at the severai modeis of unitization agreements that are provided in Volume 3 infra.
1~ Wiliams, MThe Negotiation &. Preparation of Unitization Agreements. W

1 Sw Legal Fdn Oil & Gas Inst. 43, 58-59 (1949).

(Rei 18-10/89 Pub.4551

 19.01(3)

POLING AND UNITIZON

19-42.2

does not cause the subdivided tract to be labeled as a legal subdivision .and

thus entitled to a well without an exception permit. In this case, Exxon was challenging the issi,ance of a replacement well on a 40 acre legal subdivision
that had been pooled into a i 60 acre unit The.court did not directly respond to the cross-conveyance argument made by Exxon beause the Commission had issued the well permit under Rule 38(d)(1) allowing legal subdivisions to

drill a "first well" without the need for. an exception permit In theory,
however, if a poling is treated as a cross conveyance, the ownership in the pooled unit destroys the prior unitary ownership of the legal subdivision and would not allow a welf.be to driled without receiving an exception permit.
(3) Effect of

Express Provisions

In many of the cases discussed in this chapter, the court were searching for the elusiv.e intent of the parties, which was often not stated expressly in the Instrument that pooled or unitized the affected interests. The court in those case were lookingto see if the parties intended to cross-convey interests or

merely create contractual rights. If that is the function of the respectve

. doctrines, nai:ely the designtion of presumed intent where the parties are

silent on the issue, parties should be free to pool or unitize either as a

contractual right or as a propert right if they make it clear in the popllng or

unitization agreement or community lease. For example, if in Texas, the parties to a voluntary unitization agreement included the standard provision
suggested

by the American Petroleum Institute in their Model Unit Agree-

ment that states, "Nothing. herein shall be construeQ to result in the transfer of title to Oil and Gas Rights by any part hereto to any other part or to Unit

Operator," then the Texas court should enforce that provision and find no cross-conveyance of interests. 85 likewise, if in a contract doctrine state the parties inserted a provision clearly evincing an intent to cross-convey royalty and working interests, the courts should enforce the agreement as written.
The cases that deal with these express agreements follow the terms of the

agreement, rather than rely on the common-law choice made by the court
to deal with the agreements that are silent on the choice to be made. 86

8S The Amenca Petroleum Institue's various Model Unit Agreements and Unit Operating

Agreements are locted in Volume 3 iiifra. !I Leo Hoffman argued vigorously that the paies could avoid the result of the cross-conveyance

dotrne in Texas, but ils conclusion would also work in cotrCt doctrine siates should the partics
. intend to cross-convey theirinteresis. He said: 'There can hardly be any objection in the law to such an expre agreement that the pooling or uniti7.aon shall not constitute an exchange or iransfer of real propey interests. Preumably such a provision is valid, and, therefore. dlcx!Ive for tlie purpose

of nul!fyiiig any cross-conveyancing which would otherwise resull" L. HoJllJn, Voluntary

Pooling and. Uniti~.ai.on 168 (1954).
,"Hel. )7. luroLr luMjj

19-42.3
.11:

UNZED TITLE

19.01(3)

Before discussing the cases a few caveats need to be added to the. above

analysis. While partes are free to determine their own rights under many
circumstances, they are not free to do so und~r all circumstances. For
example, if the partes to a unitization agreement. merely state that the

agreement does not

(Text continued on page 19-43)

(Rel. 37- 10l0l P\bA55)

19-3

UNITIED TIE

19.0131

violate the R~le Aginst Perpetuities or that nothing that the agreement accomplishes is intended to violate the rule, that agreement is dearly not binding on a reviewing court that wil have to make its own independent determination on whether
or not the rule has been violated. Likewise, a provision decaring that a1l covenants contained in the contrat are real covenants that touch and concern the

affected estates is not binding on a court that wil likewise have to determine independently whether the agreement otherwise contains the mini-

mum requirements for th creation and enforcement of real

covenants.

Furthermore, pooling and unitization agreements cannot

create new common-law estates merely because the partes agree to some new form of propert interest that suits their

purposes. The contractng parties wil be limited in their abilty

to characterize their relationship insofar as propert interests are concerned to the traditional estates developed in medieval England. Provisions that attempt to make legal conclusions, rather than provisions t.hat describe the nature of the relation-

.. ship between the parties, may not be effective means of achieving the desired result. The drafter of pooling and unitization agr~ements or community leases should take care that

the language clearly would show a court what result the parties intend, whether it be a cross-conveyance of propert interests or, as is more likely, merely the creation of certin contractual rights. A provision such as the A.PJ. form analyzed above, shoul be suffcient to achieve the purpose of treating
the nature of the unitized title as creating only contractual

rights and not property rights.

One of the earliest cass recognizing the rights of the parties to structure their own relationship was Phillips Petroleum

Co. v. Peterson.'7 The unitization agreement involved in this

case contained a provision that said:

. . .Nothing herein, however, shall be construed to

transfer title to any land or to any lease or operating

17 Phillps Petrleum Co. v. Peterson, 216 F.id 926, 4 O.&G.R. 746 (10t

(ir. 1954), eM. denied 349 U.S. 947, 1178 (1955). See 19.01 (2)blLi supra for a discussion of the Peterson case. .
(ll8-tOlS9 Pi4SS)

IN THE UNITED STATES BANKRUPTCY COURT

In re: )
STATE OF DELAWARE )
) ss:

FOR THE DISTRICT OF DELAWARE

Chapter 1 1

)
Case No. 09-10785 (KJC)

PACIFIC ENERGY RESOURCES LTD., et al., i )

Debtors. )

(Jointly Administered)

AFFIDA VIT OF SERVICE

COUNTY OF NEW CASTLE )

Kathleen Forte Finlayson, being duly sworn according to law, deposes and says
that she is employed by the law firm of

Pachulski Stang Ziehl & Jones LLP, attorneys for the

Debtors in the above-captioned action, and that on the 2th day of August, 2009 she caused a
copy of

the following document(s) to be served upon the parties on the attached service lists in

the maner indicated:

Reply Brief of Debtors to Objections to Alternative Motion of Pacific Energy Alaska Operating LLC for an Order Authorizing Abandonment of Interests in Oil and Gas
Properties at Trading Bay, Alaska and Rejection of Executory Contracts Relating

Thereto

~lL~
Kathl orte Finlayso

MARY E. CORCORA
NOTARY PUBLIC STATE OF DELAWARE

ttf/rJ
i The Debtors in these cases, along with the last four digits of each of Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The mailing address for all of

My commission expires Nov. 4, 200

the Debtors' federal tax identification number, are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings, LLC (tax J.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021); San Pedro Bay Pipeline Company (1234); Cameros
the Debtors is ILL W.
Ocean Boulevard, Suite 1240, Long Beach, CA 90802.

Pacifc Energy/Objectors to

Alternative Motion re Properties

At Trading Bay, Alaska

Case No. 09-10785

Document No. 152505

02- Hand Delivery

02 - Overnight Delivery

Hand Delivery (Counsel for Union Oil Company of California, a California Corporation) Norman M. Monhait, Esquire
Rosenthal, Monhait & Goddess, P A

Citzens Bank Center, Suite 1401 919 Market Street, P.O. Box 1070 Wilmington, DE 19899

Hand Delivery (Counsel for State of Alaska)

Joseph H. Huston, Jr., Esquire

Maria Aprile Sawczuk, Esquire Stevens & Lee PC i 105 N. Market Street, Ste 700 Wilmington, DE i 9801

Via Overnight Delivery (Counsel for Union Oil Company of California) Richard L. Epling, Esquire David A. Crichlow, Esquire Roger Elder, Esquire Pilsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10036
Overnight Delivery (Counsel for State of Alaska) Lorenzo Marinuzzi, Esquire Samantha Martin, Esquire Morrison & Foerster LLP
1290 A venue of the Americas

New York, NY 10104

68773-002\DOCS _ DE: i 52505. i

Pacific Energy Resources Ltd. 2002 Overnight Service List

Case No. 09-10785
Document No. 145901

14 - Hand Delivery
09 - Express Mail
34 - Overnight Delivery

Hand Delivery (United States Attorney) Ellen W. Slights, Esq. United States Attorney's Office District of Delaware
1007 N. Orange Street, Suite 700

Wilmington, DE 19801
Hand Delivery (Counsel for the Debtors and Debtors in Possession) Ian S. Fredericks, Esquire Skadden Arps, Slate, Meagher & Flom LLP One Rodney Square P.O. Box 636 Wilmington, DE 19899 Hand Delivery (Counsel for 1. Aron & Company) Don A. Beskrone, Esquire Amanda M. Winfree, Esquire Ashby & Geddes, P.A.
500 Delaware Avenue, 8th Floor

02 - FOREIGN Overnight Delivery

Counsel for Debtors) Laura Davis Jones, Esquire James E. O'Neil, Esquire Kathleen P. Makowski, Esquire Pachulski Stang Ziehl & Jones LLP 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705

Interoffice Pouch to Los Angeles Counsel for Debtors) Robert M. Saunders, Esquire Ira D. Kharasch, Esquire Scotta E. McFarland, Esquire Pachulski Stang Ziehl & Jones LLP
10100 Santa Monica Blvd., 11 th Floor

Wilmington, DE 19899
Hand Delivery (Counsel for Union Oil Company of California, a California Corporation) Norman M. Monhait, Esquire Rosenthal, Monhait & Goddess, P A
CitZens Bank Center, Suite 1401

Los Angeles, CA 90067

Hand Delivery (United States Trustee) Joseph McMahon, Esquire Office of the United States Trustee J. Caleb Boggs Federal Building 844 North King Street, Suite 2207
Lockbox 35 Wilmington, DE 19801

919 Market Street, P.O. Box 1070 Wilmington, DE 19899

Hand Delivery (Counsel for Westchester Fire Insurance Company and Noble Energy Inc.) Tobey M. Daluz, Esquire Joshua E. Zugerman, Esquire Ballard Spahr Andrews & Ingersoll, LLP 919 N. Market Street, izth Floor Wilmington, DE 19801

Hand Delivery (Copy Service)

Parcels, Inc.

Vito i. DiMaio 230 N. Market Street Wilmington, DE 19801

Hand Delivery (Counsel for Oxy Long Beach Inc.) David L. Finger, Esquire Finder, Slanna Liebesman, LLC One Commerce Center
1201 N. Orange St., 7th Floor

Hand Delivery _

(Counsel for Amadon Limited and

Catherwood Limited) Mark E. Felger, Esquire Cozen O'Connor 1201 N. Market Street, Suite 1400 Wilmington, DE 19801

Wilmington, DE 19801
Hand Delivery
(Official Committee of

Unsecured

Creditors) David B. Stratton, Esquire James C. Carignan, Esquire Pepper Hamilton LLP
Hercules Plaza, Suite 1500

Hand Delivery (Counsel for Forest Oil Corporation) Robert J. Dehney, Esquire
Curis S. Miler, Esquire

Morris Nichols Arsht & Tunell LLP 1201 N. Market Street Wilmington, DE 19899

1313 Market Street Wilmington, DE 19899

Express Mail
Secretary of State Division of Corporations Franchise Tax P.O. Box 7040 Dover, DE 19903

Hand Delivery (Counsel for Marathon Oil Company) Kevin J. Mangan, Esquire Womble Carlyle Sandridge & Rice, PLLC 222 Delaware Avenue, Suite 1501 Wilmington, DE 19801 Hand Delivery (Counsel for Cook Inlet Region, Inc.) Eric Lopez Schnabel, Esquire Dorsey & Whtney (Delaware) LLP
1105 North Market Street, Suite 16th Floor

Express Mail
Secretar of Treasury

P.O. Box 7040 Dover, DE 19903

Express Mail
Internal Revenue Service P.O. Box 21126 Philadelphia, P A 19114-0326

Wilmington, DE 19801
Hand Delivery (Counsel for Area Energy LLC) Norman L. Pernick, Esquire Karen M. McKinley, Esquire Cole, Schotz, Meisel, Forman & Leonard,
P.A.

Express Mail
line P.O. BOX 1360
Pollard Wire

Kenai, AK 99611

500 Delaware Avenue, Suite 1410 Wilmington, DE 19801

Express Mail Californa Franchise Tax Board

Banptcy, BE MSA 345

P.O. Box 2952 Sacramento, CA 95812-2952

Express Mail
SWEPI LP

P.O. Box 576 Houston, TX 77001-0576

Express Mail
Linda Lautigar

Overnight Delivery (United States Attorney General) Eric H. Holder, Jr. Office of the Attorney General U.S. Department of Justice 950 Pennsylvania Avenue, N.W. Washington, DC 20530-0001
Overnight Delivery Secreta of Treasur 15th & Pennsylvana Avenue, N.W. Washington, DC 20220

Banptcy Coordinator
MMS / Denver Federal Center POBox 25165 Mail Stop 370B2 Denver, CO 80225

Express Mail
Kristina Engelbert RDI Royalty Distributors, Inc. PO Box 24116 Tempe, AZ 85285
Overnight Delivery
Attn: Insolvency

Express Mail
(Claims representative for the County of Kern)
Att: Banptcy Division

District Director Internal Revenue Service 31 Hopkins Plaza, Room 1150 Baltimore, MD 21201 Overnight Delivery Attn: Insolvency Internal Revenue Service 1352 Marows Road, 2nd Floor
Newark, DE 19711-5445

c/o Linda Delgado P.O. Box 579 Bakersfield, CA 93302

Foreign Overnight Delivery TSX Kerry D. Krochak, B.A., LL.B. Manager, Listed Issuer Services Toronto Stock Exchange 300 Fifth Avenue SA, 10th Floor
Calgar, AB T2P 3C4

Overnight Delivery Mark Schonfeld, Esq. Regional Director Securities & Exchange Commission New York Regional Offce 3 World Financial Center, Suite 400 New York, NY 10281-1022
Overnight Delivery Michael A. Berman, Esq. Securities & Exchange Commission Offce of General Counsel-Banptcy
100 F Street, N .E.

Foreign Overnight Delivery

(Transfer Agents)
Bernadette Vilarica

Relationship Manager, Client Services

Computershare Investor Services Inc.

510 Burard Street, 3rd Floor Vancouver, BC V6C 3B9

Washington, DC 20549

Overnight Delivery
Matthew Berr, Esquire

Office of General Counsel Federal Communications Commission

445 12th Street, S.W.

Overnight Delivery MTGLQ Investors, L.P. 85 Broad Street New York, New York 10004
Overnight Delivery Goldman Sachs E&P Capital Attn: Matthew C. Tarer 1000 Louisiana, Suite 550 Houston, Texas 77002

Washington, DC 20554
Overnight Delivery Chevron Oil Company
Attn: Steven Lastraps

3800 Centerpoint Drive, Suite 100 Anchorage, AK 99503

Overnight Delivery Aera Energy LLC 10000 Ming Avenue Bakersfield, CA 93311-1164
Overnight Delivery
Noble Energy, Inc.

Overnight Delivery SPCP Group, L.L.C.

Two Greenwich Plaza, 1 st Floor

Greenwich, CT 06830

Overnight Delivery Seth E. Jacobson, Esquire L. Byron Vance III, Esquire

Skadden, Ars, Slate, Meagher & Flom LLP 155 N. Wacker Drive, Suite 2700

100 Glenborough, Suite 100 Houston, TX 77067

Chicago, IL 60606-1720

Overnight Delivery (Counsel to Silver Point Finance) Seth Jacobs, Esquire

Ana Meresidis, Esquire

Skadden, Ars, Slate, Meagher & Flom, LLP 155 N. Wacker Drive, Suite 2700 Chicago, IL 60606-1720

Overnight Delivery (Counsel to United States Deparment of Interior, including the Minerals
Management Service)

E. Kathleen Shahan, Esquire U.S. Deparment of Justice 1100 L Street, NW Washington, D.C. 20005

Overnight Delivery (Counsel to Goldman Sachs)

Jeffey Sabin, Esquire

Bingham McCutchen 399 Park Avenue New York, NY 10022

Overnight Delivery (Counsel to Goldman Sachs) Amy Kyle
Bingham McCutchen

Overnight Delivery (Counsel for Westchester Fire Insurance Company) Robert McL. Boote, Esquire Ballard Spah Andrews & Ingersoll, LLP
1735 Market Street, 51 st Floor

Philadelphia, P A 19103

(Boston) One Federal Street Boston, MA 01221-1726

Overnight Delivery (Counsel for Rosecrans Energy, Ltd. And Sherwn D. Yoelin)
John J. Haris, Esquire

Overnight Delivery
(Official Committee of

Unsecured

Creditors) Robbin Itkin, Esquire

Katherine Piper, Esquire

Rachel M. F eiertag, Esquire Meyers, Nave, Riback, Silver & Wilson 333 South Grand Avenue, Suite 1670 Los Angeles, CA 90071

Kelly Frazier, Esquire Steptoe & Johnson LLP

2121 Avenue of

the Stas, 28th Floor

Los Angeles, CA 90067

Overnight Delivery (Counsel for Oxy Long Beach Inc.) Richard M. Kremen, Esquire
Jodie E. Buchman, Esquire

Overnight Delivery (Counsel for Cook Inlet Region, Inc.)

Michael R. Mils, Esquire

DLA Piper LLP (US)

6225 Smith Avenue

Dorsey & Whitney LLP

1031 W. 4th Ave., Suite 600

Baltimore, MD 21209
Overnight Delivery
(Counsel for Noble Energy Inc.) Rhett G. Campbell, Esquire

Anchorage, AK 99501
Overnight Delivery (Counsel for the State of Alaska) Lorenzo Marinuzzi, Esquire Morrison & Foerster LLP 1290 Avenue of the Americas New York, NY 10104

Mitchell E. Ayer, Esquire Thompson & Knght LLP 333 Clay Street, Suite 3300 Houston, TX 77002
Overnight Delivery
(Official Committee of

Unsecured

Creditors)
Francis 1. Lawall, Esquire

Pepper Hamilton LLP 3000 Two Logan Square Eighteenth & Arch Streets Philadelphia, PA 19103
Overnight Delivery
(Official Committee of

Overnight Delivery (Counsel for DCFS Trust subservicer for DCFS Trust) Marin A. Mooney, Esquire Deily, Mooney & Glastetter, LLP 8 Thurlow Terrace Albany, NY 12203 Overnight Delivery (Counsel for Aera Energy LLC) Steven E. Rich, Esquire Mayer Brown LLP
350 South Grand Avenue, 25th Floor

Unsecured

Creditors) Filiberto Agusti, Esquire

Steven Reed, Esquire

Los Angeles, CA 90071

Overnight Delivery Aurora Gas LLC 6051 Nort Course Drive, Suite 200 Houston, TX 77043

Joshua Taylor, Esquire Steptoe & Johnson LLP 1330 Connecticut Avenue NW Washington, DC 20036

Overnight Delivery (Counsel for Union Oil Company of California) Richard L. Epling, Esquire David A. Crichlow, Esquire Roger Elder, Esquire
Pilsbur ~inthrop Shaw Pittman LLP

1540 Broadway New York, NY 10036

Overnight Delivery (Counsel for Minerals Management Service) DeAn L. Owen, Esquire
Office of

the Solicitor, Rocky Mountain

Region
755 Parfet Street, Suite 151

Lakewood, CO 80215
Overnight Delivery (Counsel for Amadon Limited and Catherwood Limited) Philip M. Abelson, Esquire
Dewey & LeboeufLLP

130 1 Avenue of the Americas

New York, NY 10019

Overnight Delivery
(Counsel for Forest Oil Corporation)

Steven M. Abramowitz, Esquire Ronald L. Oran, Esquire Vinson & Elkins

666 Fifth Avenue, 26th Floor

New York, NY 10103