Providing coverage of Alaska and northern Canada's oil and gas industry
May 2017

Vol. 22, No. 21 Week of May 21, 2017

Kenai Loop compression pushed to 2018

AIX believes Cook Inlet gas field can hold out another year; touts major reduction in water handling costs; eyes other upgrades

Eric Lidji

For Petroleum News

AIX Energy Inc. is considering a range of facility upgrades at the Kenai Loop field.

The Texas-based independent is not planning to drill any new wells at the onshore Cook Inlet natural gas field over the coming year. But the company is continuing to evaluate several infrastructure projects, including an upgrade to compression systems, a plan to revive a currently dormant production well and a plan to decommission an existing pad.

Average daily gas production at Kenai Loop appears to have peaked at approximately 11.5 million cubic feet per day in the first quarter of 2016, a little more than four years after startup. The field produced 3.159 billion cubic feet in the year ending March 31, down from 3.657 billion cubic feet during the previous year. Condensate production also declined to 507 barrels in the year ending March 31 from 649 barrels the previous year.

A drop in daily production earlier this year appears to be related to the unpredictability of two non-firm contracts - one with Tesoro and the other with an un-named customer.

A firm contract with Tesoro and a larger firm contract with Enstar Natural Gas Co. will both expire later this year. “AIX has multiple contracts which are likely to lead to additional non-firm sales in 2017. AIX is also pursuing additional firm commitments beyond the termination of the Tesoro and Enstar contracts in 2018,” according to AIX.

The company described its current strategy as an attempt to “to maximize field recovery and net present value by aligning production capacity with commercial opportunities.”

Future drilling plans unclear

Whether that strategy will call for drilling in 2018 or beyond is unclear.

In its nearly five years as the operator of Kenai Loop, predecessor Buccaneer Energy Ltd. drilled four wells. The KL 1-1 and KL 1-3 wells are currently in production. AIX is considering plans to convert the temporarily suspended KL 1-2 production well into a disposal well. The shut-in KL 1-4 production well is not currently tied into the system.

Earlier this year, AIX hired a geophysical/petrophysical team “to evaluate additional rate enhancing opportunities” at the four Kenai Loop wells but is still reviewing the results.

In its 2016 plan of development for Kenai Loop, for the year ending March 31, AIX proposed a range of facilities projects to improve production and operations at the field.

Among those was an attempt to address water-handling costs, which represent the second-highest lease operating expense at the field after personnel, according to the company. Last year, AIX negotiated a 29 percent decline in water-handling fees.

A plan to install a gas compression system at the field remains unresolved. In its May 2016 plan of development, AIX said it expected to install such a system within 12 to 18 months. But after updating internal models based on “flowing and shut-in data,” the company is now forecasting that the compression system can wait until mid-2018.

The questions to be resolved are the same as last year: whether to purchase a system or to lease it, and whether the system should be gas-fired or electric-fired. The proposal to revive the KL 1-4 well is part of the larger question of planning a compression system.

In its current plan of development, AIX also said it had decided in April 2017 not to renew its land lease for the Kenai Loop Pad No. 2 with the Alaska Mental Health Trust Land Office and was “currently working with TLO to evaluate the way forward.” The lease expired at the end of 2016, according to the Trust Land Office. As part of those discussions with the Trust Land Office, AIX will be required to decommission the pad.

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