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March 2011

Vol. 16, No. 13 Week of March 27, 2011

Despite declines, Cook Inlet still busy

Majors and indies continue to ring life from old fields and chase new targets, not only oil and gas, but also coal and geothermal

Eric Lidji

For Petroleum News

While oil taxation debates in Juneau are focusing public attention on North Slope investment, Cook Inlet continues to be a dynamic basin, where big players squeeze life from old assets and new companies chase untapped targets. As the warmer weather approaches, here are some of the energy developments in the Southcentral area.

The majors in the Cook Inlet continue to focus on maintain legacy assets.

In late 2010, Chevron completed a gas well from the Steelhead platform, and the company also performed two gas well workovers at Steelhead last year. Chevron also partnered on non-operated drilling programs at the Ninilchik unit and the Beluga River unit in 2010.

This year, the company is planning a mix of similar activities. “We plan to begin our Chevron operated program in the third quarter of 2011 with a workover and drilling program for gas on the Steelhead platform,” spokeswoman Roxanne Sinz told Petroleum News. “We anticipate other possible new drilling activities in our partner operated properties. We are considering a new drilling opportunity at Ninilchik unit and are evaluating the drilling of a replacement well in Beluga River unit this year.

“We currently have workover operations under way on the Grayling Platform performing abandonment work,” Sinz wrote. “Once that project is complete, we will start a workover program on the King Salmon Platform. Well P&A work is planned on one of the Middle Ground Shoal Platforms pending the results of a tender that is currently under way. Onshore we have a well workover program planned for this summer at Swanson River.”

Chevron operates in Alaska along with its affiliate Union Oil Co. of California, and in October 2010 the companies announced plans to market their Cook Inlet assets.

Reduced drilling for Marathon

Marathon Oil continues to forecast reduced drilling.

The Houston-based major plans to drill between one and three wells per year in Alaska in 2011 and 2012, according to recent U.S. Securities and Exchange Commission filings.

Marathon drilled nine wells in 2008, six wells in 2009 and three wells in 2010.

Marathon, however, did do something rare in 2010: drill an exploration well. Marathon said its Sunrise LK2 well on Cook Inlet Region Inc. leases inside the Kenai National Wildlife Refuge “encountered a zone of interest” but released no further results.

ConocoPhillips and Marathon are also in the process of mothballing their liquefied natural gas export facility on the Kenai Peninsula. While the companies said they are monitoring LNG demand in Japan in the wake of a nuclear disaster, they did not — as of yet — have any plans to make additional shipments outside of their original contract.

In addition to some of that operated drilling, such as Beluga River, ConocoPhillips is focusing mostly on field maintenance. Particularly, the company is working to move compressors at the Beluga River unit closer to wells to increase reservoir pressure.

Life in Southern Kenai

Armstrong Cook Inlet will be the newest producer in the Cook Inlet.

The Denver-based independent and several partners recently got approval to bring the onshore North Fork unit, located in the southern Kenai north of Homer, into production.

Armstrong is already set up to make deliveries to regional utility Enstar Natural Gas through a contract brokered in 2009, but is also exploring the oil potential of the unit.

With North Fork, the regional natural gas transmission grid now extends into the southern half of the Kenai Peninsula, changing the economics of development in the region.

However, as of yet, leaseholders in the region have not announced new projects.

Chevron, through Unocal, recently asked the state to extend the terms of the Nikolaevsk unit, located just northeast of North Fork, until March 31, 2012. The unit was originally set to expire on Jan. 30, 2009, but the state previously extended it to March 31, 2011.

Unocal has lost several battles at Nikolaevsk recently.

Over the past year, the Division of Oil and Gas rejected Chevron’s third plan of development for the unit, as well as a request to form participating areas at the unit.

Pioneer Natural Resources recently terminated its Cosmopolitan unit, located west of North Fork along the coast by Anchor Point, but kept two leases held by production.

The short term status of those leases will become known when the division releases the notice for the next Cook Inlet areawide lease sale, expected in the next few weeks.

Cosmopolitan is primarily oil prone, but is thought to contain significant gas as well.

The largest leaseholder in the Cosmopolitan area is Apache, the Houston-based independent that arrived in Alaska last year and generally revisits old oil plays.

Buccaneer Alaska doesn’t plan to explore its leases in the area until 2012 (see below).

New players moving fast

Several new companies arrived in the Cook Inlet last year and quickly got to work.

Linc Energy Alaska, the local subsidiary of an Australian independent, recently completed its first well in Alaska, an onshore well near Point McKenzie.

Since arriving in Alaska, Linc has acquired 122,000 acres in oil and gas leases and 181,000 acres in Underground Coal Gasification leases from the Mental Health Trust.

Linc drilled the LEA No. 1 well in October, 2010, confirming “three significant sand intervals that appear to be gas charged.” Linc is still analyzing the well, though.

While LEA No. 1 is a conventional gas well, Linc is primarily focused on Underground Coal Gasification, a process to produce synthesis gas in situ from deep coal seams.

Linc expects a three phase UGC project in Alaska: a single gasifier on a 90-day trial monitored for one year; a panel of three to six gasifiers on a one year trial; and finally a working underground coal gasification project combined with gas-to-liquids technology producing 20,000 barrels per day of various synthetic diesel products.

Local independent NordAq Energy Inc. spud its Shadura No. 1 exploration well in mid-February on Cook Inlet Region Inc. subsurface in the Kenai National Wildlife Refuge.

At a total depth of 14,556 feet, the well is targeting potential gas horizons in the Upper and Middle Tyonek formation and a secondary objective in the Beluga formation.

On the west side of Cook Inlet, Cook Inlet Energy, a subsidiary of Tennessee independent Miller Energy Resources spent its first year in Alaska restoring production from older fields it picked up following the bankruptcy of Pacific Energy Resources.

Cook Inlet Energy is considering some exploration and development wells it could drill from the Osprey platform. “We have begun ordering the equipment necessary to deploy our next stage of development for the Osprey platform and are in active discussions to secure the necessary capital to fund the next phase of our operations. If we are successful in securing this necessary funding, we believe our development plans will result in an increase in both the number of producing wells and the amount of our total oil and gas production,” Miller CEO Scott Boruff said in a March 22 statement.

Meanwhile, veteran Cook Inlet independent Aurora Gas — a leaseholder on both sides of the Cook Inlet — is focusing on marketing its gas, but also proposing to drill two wells this year. The company, though, might farm-out some or all of its exploration acreage.

Buccaneer aims to get busy

Another Cook Inlet newcomer is looking to shift from planning to drilling.

Buccaneer Alaska, the local subsidiary of an Australian independent, is gearing up to drill its first well in Alaska, an onshore well just north of Marathon’s Cannery Loop unit.

Buccaneer recently contracted the Glacier Drilling Rig No. 1 — previously used at NordAq’s Shadura No. 1 well — to drill the Kenai Loop No. 1 well this spring.

Buccaneer is also planning a much larger drilling project for this summer.

The company is looking to buy a jack-up rig to explore two offshore prospects in upper Cook Inlet — the Southern Cross unit and the North West Cook Inlet unit.

Buccaneer is looking to partner on the purchase with the Alaska Industrial Development and Export Authority and should know more about the fate of the venture in April.

With those two projects taking priority for 2011, Buccaneer has pushed back work on its two other Alaska projects — the West Eagle prospect in the southern Kenai Peninsula and the West Nicolai Creek prospect on the west side of the Inlet — for at least a year.

Escopeta jack-up on way to inlet

Buccaneer is not the only company that wants to see a jack-up rig in Alaska.

Houston independent Escopeta Oil is currently shipping the Spartan 151 jack-up rig to Cook Inlet on a heavy lift vessel expected to arrive in Alaska in early May. The jack-up is under a two-year lease, with the option for an additional four years. Escopeta also has an option to purchase the rig, and intends to use it to drill both its own wells and those of other operators.

Once the rig arrives and passes inspection, Escopeta plans to use it to explore Kitchen Lights, a large offshore unit in the upper Cook Inlet with four distinct prospects — Corsair, Northern Lights, East Kitchen and Kitchen.

“We’ll drill our first well at Corsair,” Escopeta President Danny Davis told Petroleum News in February. “And then while we’re evaluating the results from our well, we’ll use it to drill another company’s well.”

CIRI and Ormat

While Cook Inlet is primarily a natural gas basin with limited oil production, companies are increasingly exploring the region for unconventional forms of energy.

Cook Inlet Region Inc. has been drilling on the west side of the Cook Inlet to explore the underground coal gasification potential of deep coal seams in the area. Meanwhile, Ormat Nevada recently confirmed the geothermal potential of its wells in the Mount Spurr area and is now wants to sign a power purchase agreement to fund development.






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