Common use of The Economic Costs and Benefits to the State and Other Relevant Factors Clause in Contracts

The Economic Costs and Benefits to the State and Other Relevant Factors. Approval of the Agreement in combination with the Initial XXX will result in both short-term and long-term economic benefits to the state. The assessment of the leases’ hydrocarbon potential will create jobs in the short-term. If the WIO makes a commercial discovery and begins development/production from the Whiskey Gulch Unit, the state will earn royalty and tax revenues over the long-term life of the field. The Initial XXX with the agreed-to terms and conditions set out in this decision advances exploration and evaluation of the prospects in the expansion area sooner than would occur under any individual lease exploration effort. Seven of the leases in the proposed unit area will expire on November 30, 2005, if they are not extended by unitization. If the leases expire, the leasehold interest will return to the state. The earliest that the Division could re-offer the land, under the current Five-Year Oil and Gas Lease Sale Schedule, is February 2007. There is no certainty that anyone would bid on the tracts or pursue exploration of this area. If the Division leased the tracts again in 2007, the state would receive bonus payments and rentals for the primary term of the new leases. However, it could be years before the new lessees would propose exploration of the area. Under the proposed Agreement and Initial XXX, the unit operator agreed to make a commitment to drill the first Whiskey Gulch Unit well by November 1, 2006, and drill the well by June 1, 2007. This commitment provides the state with the opportunity to receive royalties from the leases sooner than if the acreage were re-offered. The twelve leases proposed for the Whiskey Gulch Unit are written on a variety of forms, containing a variety of provisions. Including the leases in the Whiskey Gulch Unit Agreement would conform and modify the lease contracts to be consistent with the Agreement. Consistent lease provisions allow the WIO and the state to reduce the administrative burdens of operating and regulating this unit. Conforming the terms of the older leases to the Agreement allows the state to avoid costly and time-consuming re-litigation of some problematic lease provisions in the older forms. During the Agreement negotiations and the discussions for this Application, the parties bargained for amendments to the terms and conditions of the various lease contracts to harmonize them. The WIO has agreed to lease amendments requested by the Division as a condition of including the leases into the Whiskey Gulch Unit. The agreed-to lease amendments are: 1) Paragraph 36(b) of lease form DOG 200204 (rev. 10/2003) will replace the existing paragraph 36(b) of lease form DOG 9609 (rev. 6/97) and lease form DOG 200004; and 2) No ANS Royalty Settlement Agreement will apply to the Whiskey Gulch Unit leases. The WIO has agreed to provided technical data sufficient to define the prospect under consideration, has committed its lease interests to the proposed unit and has agreed to an Initial XXX that ensures a timely sequence of drilling and development activities in order to evaluate and develop all the acreage within the proposed unit area. The Initial XXX with the agreed-to terms and conditions set out in this decision advances exploration and evaluation of the prospects in the unit area sooner than would occur under any individual lease exploration effort.

The Economic Costs and Benefits to the State and Other Relevant Factors. Approval of the Agreement in combination with the Initial DNR’s proposed XXX will result in both short-short term and long-long term economic benefits to the stateState. The assessment of the leases’ hydrocarbon potential of the subject leases will create jobs in the short-short term. If the WIO BP makes a commercial discovery and begins development/production from the Whiskey Gulch Unitdiscovery, the state will earn royalty and tax revenues over the long-long term life of the field. The Initial XXX with the agreed-to primary terms and conditions set out in this decision advances exploration and evaluation of the prospects in the expansion area sooner than would occur under any individual lease exploration effort. Seven of the eight leases in the proposed unit area will expire on November 30March 31, 20052001, if they are not unless extended by unitization. If the leases expire, the leasehold interest will return to the state. The earliest that the Division DNR could re-offer reoffer the land, under the current Five-Year Oil and Gas Lease Sale Schedule, is February 2007. There is no certainty that anyone would bid on the tracts or pursue exploration of this areaNovember 2001. If the Division DNR leased the tracts again expired lands in 20072001, the state would could receive bonus payments and rentals for the primary term of the new leases. However, it could be years before the new lessees would propose exploration of the area and even longer before the state receives royalties and taxes on any commercial production. If after committing to drill the first Slugger Unit well, BP fails to drill the well to completion by May 15, 2003, the entire unit acreage will then be available for reoffer in the North Slope 2003 Areawide Lease Sale, however, the state will have lost the opportunity to receive bonus bids on the acreage in the two previous sales (NS 2001 and NS 2002). Therefore, the Initial XXX imposes a $430,000 charge if BP fails to drill the Slugger Unit #1 well after committing to do so. BP agreed in concept to compensate the state for extending the lease terms through unitization and foregoing the bonus bids and interest the state could have earned if the acreage was offered in the NS 2001 or NS 2002 Areawide lease sales. Imposing this charge protects the state from the loss of revenue due to withholding the acreage from leasing for two years. If BP commits to and does not drill Slugger #2 well by May 15, 2004, then the entire unit will terminate, and BP will pay a charge of $370,000 to compensate the state for extending the lease terms through unitization and foregoing the bonus bids and interest the state could have earned if the acreage was offered in the NS 2001, NS 2002 and NS 2003 Areawide lease sales. If both xxxxx are drilled in the same area, acreage will contract out of the Slugger Unit, and BP will pay a charge to compensate the state for extending the lease terms through unitization and foregoing the bonus bids and interest the state could have earned in the ensuing lease sales. Under Imposing this charge protects the state from the loss of interest payments due to withholding the acreage from leasing for three years. If BP commits to drill the Slugger Unit #1 and #2 xxxxx, successfully completes them as scheduled by their scheduled dates, and evaluates both Area A and Area B, no financial charge will be due. The working interest owners have 30-days from this date, March 30, 2001, to agree in writing to the terms of this Decision. If they choose not to agree, DNR’s approval of the unit is rescinded and the primary terms of the leases will expire as originally scheduled, making eight of the leases available for lease in the next lease sale. If BP does not continue to explore and develop the unit area in accordance with DNR’s proposed Agreement and Initial XXX, the unit operator agreed will terminate and the leasehold interests will return to make a commitment to drill the first Whiskey Gulch Unit well by November 1, 2006, and drill the well by June 1, 2007. This commitment provides the state with the opportunity to receive royalties from the leases sooner than if the acreage were re-offeredstate. The twelve leases proposed for potential long-term economic benefit of exploration and earlier development of the Whiskey Gulch Slugger Unit are written on area outweighs the short- term loss of potential bonus payments. The state receives a variety of forms, containing a variety of provisions. Including the 12.5% royalty share from leases in the Whiskey Gulch Unit Agreement would conform and modify the lease contracts to be consistent with the Agreement. Consistent lease provisions allow the WIO and the state to reduce the administrative burdens of operating and regulating this unit. Conforming the terms of the older leases to the Agreement allows the state to avoid costly and time-consuming re-litigation of some problematic lease provisions in the older forms. During the Agreement negotiations and the discussions for this Application, the parties bargained for amendments to the terms and conditions of the various lease contracts to harmonize them. The WIO has agreed to lease amendments requested by the Division as a condition of including the leases into the Whiskey Gulch Unit. The agreed-to lease amendments are: 1) Paragraph 36(b) of lease form DOG 200204 (rev. 10/2003) will replace the existing paragraph 36(b) of lease form DOG 9609 (rev. 6/97) and lease form DOG 200004; and 2) No ANS Royalty Settlement Agreement will apply to the Whiskey Gulch Unit leases. The WIO has agreed to provided technical data sufficient to define the prospect under consideration, has committed its lease interests to the proposed unit and has agreed to an Initial XXX that ensures a timely sequence of drilling and development activities in order to evaluate and develop all the acreage within the proposed unit area. The Initial XXX with the agreed-to terms and conditions set out in this decision advances exploration and evaluation of the prospects in the unit area sooner than would occur under any individual lease exploration effort.

The Economic Costs and Benefits to the State and Other Relevant Factors. Approval of the Agreement in combination with the Initial XXX will result in both short-short- term and long-term economic benefits to the state. The assessment of the leases’ hydrocarbon potential of the leases will create jobs in the short-term. If the WIO makes WIOs make a commercial discovery and begins begin development/production from the Whiskey Gulch NE Storms Unit, the state will earn royalty and tax revenues over the long-term life of the field. The Initial XXX with the agreed-to terms and conditions set out in this decision advances exploration and evaluation of the prospects in the expansion area sooner than would occur under any individual lease exploration effort. Seven Some of the leases in the proposed unit area will expire on November 30October 31, 2005, if they are not extended by unitization. If the leases expire, the leasehold interest will return to the state. The earliest that the Division DNR could re-offer the land, under the current Five-Year Oil and Gas Lease Sale Schedule, is February 20072006. There is no certainty that anyone would bid on the tracts or pursue exploration of this area. If the Division DNR leased the tracts again in 20072006, the state would receive bonus payments and rentals for the primary term of the new leases. However, it could be years before the new lessees would propose exploration of the area. Under the proposed Agreement and Initial XXX, the unit operator agreed commits to drill the Hailstorm Well during the 2005-2006 winter drilling season and make a commitment to drill the first Whiskey Gulch Unit well Thunderhead Well by November September 1, 20062007, and drill the well by June 1, 20072008. This commitment provides These commitments provide the state with the opportunity to receive royalties from the leases sooner than if the acreage were re-offered. The twelve seven leases proposed for the Whiskey Gulch NE Storms Unit are written on a variety of forms, containing a variety of provisions. Including the leases in the Whiskey Gulch NE Storms Unit Agreement would conform and modify the lease contracts to be consistent with the Agreement. Consistent lease provisions allow the WIO WIOs and the state to reduce the administrative burdens of operating and regulating this unit. Conforming the terms of the older leases to the Agreement allows the state to avoid costly and time-consuming re-re- litigation of some problematic lease provisions in the older forms. During the Agreement negotiations and the discussions for this Application, the parties bargained for amendments to the terms and conditions of the various lease contracts to harmonize them. The WIO has WIOs have agreed to lease amendments requested by the Division as a condition of including the leases into the Whiskey Gulch NE Storms Unit. The agreed-to lease amendments are: 1) Paragraph 36(b) of lease form DOG 200204 (rev. 10/2003) will replace the existing paragraph 36(b) of lease form DOG 9609 (rev. 6/97) and lease form DOG 200004); and 2) No ANS Royalty Settlement Agreement will apply to the Whiskey Gulch NE Storms Unit leases. The WIO has agreed to WIOs have provided technical data sufficient to define the prospect under consideration, has have committed its their diverse lease interests to the proposed unit and has have agreed to an Initial XXX that ensures a timely sequence of drilling and development activities in order to evaluate and develop all the acreage within the proposed unit area. The Initial XXX with the agreed-to terms and conditions set out in this decision advances exploration and evaluation of the prospects in the unit area sooner than would occur under any individual lease exploration effort.

The Economic Costs and Benefits to the State and Other Relevant Factors. Approval of the Agreement in combination with the Initial XXX will result in both short-short term and long-long term economic benefits to the stateState. The assessment of the leases’ hydrocarbon potential of the subject leases will create jobs in the short-short term. If the WIO Xxxxxxxx makes a commercial discovery and begins development/production from the Whiskey Gulch Unitdiscovery, the state will earn royalty and tax revenues over in the long-term life of the fieldlong term. The Initial XXX with the agreed-to terms and conditions set out in this decision advances exploration and evaluation of the prospects in the expansion area sooner than would occur under any individual lease exploration effort. Seven of the state leases in the proposed unit area will expire on November 30July 31, 20052001, if they are not extended by unitization. If the leases expire, the leasehold interest will return to the state. The earliest that the Division DNR could re-offer reoffer the land, under the current Five-Year Oil and Gas Lease Sale Schedule, is February 2007November 2002. There is no certainty that anyone would bid on the tracts or pursue exploration of this areaspeculative area distant from existing infrastructure. If the Division DNR leased the tracts again in 20072002, the state would might receive bonus payments and rentals for the primary term of the new leases. However, it could be years before the new lessees would propose exploration of the areaarea and the royalty rates at the next sale may not be as favorable as the current leases. Under the proposed Agreement and Initial XXXAgreement, the unit operator agreed commits to make a commitment to drill explore the first Whiskey Gulch Unit well by November 1, 2006, and drill area within the well by June 1, 2007next two years. This commitment provides the state with the opportunity to receive royalties from the leases sooner than if the acreage were re-offeredwas reoffered. If the well does not show commercially producible hydrocarbons, Xxxxxxxx may not invest in further drilling. If Xxxxxxxx does not continue to explore the unit area, the unit will terminate and the lease hold interests will return to the state. The twelve potential long-term economic benefit of exploration and earlier development of the McCovey Unit area outweighs the short-term loss of potential bonus payments. The state receives a 16.66667% royalty share from the state leases proposed for and 3.375% (12.5% royalty share x 27%) of the Whiskey Gulch Unit are written on a variety of forms, containing a variety of provisions. Including royalty from the federal leases in the Whiskey Gulch Unit Agreement would conform unit area. On June 19, 1997, the Supreme Court of the United States delivered opinion No. 84 in the case of United States of America v. State of Alaska. The dispute was over the ownership of submerged lands along Alaska’s Arctic Coast. As a result of this opinion, the federal government owns the oil and modify gas resources under one lease in the lease contracts to be consistent with the Agreementunit, Tract 4 OCS-Y-1578. Consistent lease provisions allow the WIO and However, the state to reduce petitioned the administrative burdens court for a rehearing on the issue. The ownership of operating and regulating this unitTract 4 was in dispute when Xxxxxxxx submitted the McCovey Unit application. Conforming the terms The Supreme Court of the older leases to United States issued a final decree in June 2000, upholding the Agreement allows the state to avoid costly and time-consuming re-litigation of some problematic lease provisions in the older formsearlier ruling. During the Agreement negotiations and the discussions for this ApplicationTherefore, the parties bargained for amendments to the terms and conditions ownership of the various lease contracts to harmonize them. The WIO has agreed to lease amendments requested by the Division as a condition of including the leases into the Whiskey Gulch Unit. The agreed-to lease amendments are: 1) Paragraph 36(b) of lease form DOG 200204 (rev. 10/2003) will replace the existing paragraph 36(b) of lease form DOG 9609 (rev. 6/97) and lease form DOG 200004; and 2) No ANS Royalty Settlement Agreement will apply to the Whiskey Gulch Unit leases. The WIO has agreed to provided technical data sufficient to define the prospect under consideration, has committed its lease interests to the proposed unit and has agreed to an Initial XXX that ensures a timely sequence of drilling and development activities in order to evaluate and develop all the acreage submerged lands within the proposed unit area. The Initial XXX with the agreed-to terms and conditions set out McCovey Unit area is no longer in this decision advances exploration and evaluation of the prospects in the unit area sooner than would occur under any individual lease exploration effortdispute.

The Economic Costs and Benefits to the State and Other Relevant Factors. Approval of the Agreement in combination with the Initial XXX will result in both short-term and long-long- term economic benefits to the state. The assessment of the leases’ hydrocarbon potential of the leases will create jobs in the short-term. If the WIO makes WIOs make a commercial discovery and begins begin development/production from the Whiskey Gulch Cosmopolitan Unit, the state will earn royalty and tax revenues over the long-term life of the field. The Initial XXX with the agreed-to terms and conditions set out in this decision advances exploration and evaluation primary term of two of the prospects in the expansion area sooner than would occur under any individual lease exploration effort. Seven of the state leases in the proposed unit area will expire on November 30December 31, 20052001, if they are not unless extended by unitization. If the leases expire, the leasehold interest interests will return to the state. The earliest that the Division DNR could re-offer reoffer the land, under the current Five-Year Oil and Gas Lease Sale Schedule, is February 2007. There is no certainty that anyone would bid on the tracts or pursue exploration of this areaMay 2002. If the Division DNR leased the tracts again expired lands in 20072002, the state would could receive bonus payments and rentals for the primary term of the new leases. However, it could be years before the new lessees would propose exploration of the area. Under the proposed Agreement area and Initial XXX, the unit operator agreed to make a commitment to drill the first Whiskey Gulch Unit well by November 1, 2006, and drill the well by June 1, 2007. This commitment provides even longer before the state with the opportunity to receive receives royalties from the leases sooner than if the acreage were re-offeredand taxes on any commercial production. The twelve potential long-term economic benefit of exploration and earlier development of the Cosmopolitan Unit area outweighs the short-term loss of potential bonus payments. The seven State of Alaska leases proposed for the Whiskey Gulch Cosmopolitan Unit are written on a variety of forms, containing a variety of provisions. Including the leases in the Whiskey Gulch Unit Agreement unit would conform and modify the lease contracts to be consistent with the Agreement. Consistent lease provisions allow the WIO WIOs and the state to reduce the administrative burdens of operating and regulating this unit. Conforming the terms of the older leases to the Agreement allows the state to avoid costly and time-consuming re-litigation of some problematic lease provisions in the older forms. During Xxxxxxxx and Forest control 90.52% of the Agreement negotiations unit area. Four separate parties own the remaining 9.48% of the unit area. Under the Cosmopolitan Unit Joint Operating Agreement, any two or more parties with at least 61% working interest can propose and cause the discussions for this Applicationdrilling of exploratory xxxxx, and any two or more parties owning at least 80% of the working interest must approve development and production operations. Despite the fact that less than 100% of the lessees are committed to the unit, Xxxxxxxx has demonstrated that a reasonable effort was made to obtain joinder of all proper parties (record owners of oil and gas interests) within the proposed unit. 11 AAC 83.306(3); 11 AAC 83.328. Furthermore, Xxxxxxxx and Forest, representing 90.52% of the working interest ownership in the unit, hold sufficient interest in the unit area to give reasonable effective control of unit operations during the term of the Initial XXX when exploration operations will be undertaken. 11 AAC 83.316(c). As a further condition of approval of the Agreement, the parties bargained for amendments WIOs must demonstrate to the terms and conditions Division’s satisfaction that the WIOs endorsing the unit plan subsequent to the Initial XXX hold sufficient continuing interest in the unit area to give effective control of the various lease contracts operations, either to harmonize themfurther explore, or develop and produce the unit. The WIO has WIOs have agreed that failure to lease amendments requested by do so will result in the Division as a condition immediate and automatic termination of including the leases into Unit on the Whiskey Gulch Unitexpiration date of the Initial XXX. The agreed-to lease amendments are: 1) Paragraph 36(b) of lease form DOG 200204 (rev. 10/2003) will replace the existing paragraph 36(b) of lease form DOG 9609 (rev. 6/97) and lease form DOG 200004; and 2) No ANS Royalty Settlement Agreement will apply to the Whiskey Gulch Unit leases. The WIO has agreed to majority WIOs provided technical data sufficient to define the prospect under consideration, has committed its their diverse lease interests to the proposed unit and has agreed to an Initial a XXX that ensures a timely sequence of drilling and development exploration activities in order to evaluate and develop all the acreage within the proposed unit area. The Initial XXX with the agreed-to terms and conditions set out in this decision advances exploration and evaluation of the prospects in the unit area sooner than would occur under any individual lease exploration effort.