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Nikolaevsk natural gas pipeline will be studied Chevron subsidiary Union Oil commits to decision on line to North Fork unit by first of year; if built, line would move gas in 2013 Kristen Nelson Petroleum News
A newly completed nearby pipeline has given Chevron subsidiary Union Oil Company of California what it believes may be an economic opportunity to produce natural gas from its Nikolaevsk unit on Alaska’s southern Kenai Peninsula.
The company has reached agreement with the Alaska Department of Natural Resources’ Division of Oil and Gas for extension of the Nikolaevsk unit, where the company found gas in 2004, subject to a commitment by the end of the year to build a pipeline.
If the company does not commit to build the line by the end of this year, the unit, formed in 2004, will terminate.
Union Oil said in its March 15, fourth amended plan of development that if the decision is made to build the line, a schedule of activities and a timeline would be included in its fifth POD, covering April 1, 2012, through March 31, 2013.
In a May 13 decision, Division of Oil and Gas Director Kevin Banks approved extension of the unit through March 31, 2013, subject to pipeline construction which would put the unit into production by 2013.
Banks said in his approval that the extension period is based on the time necessary for the company “to meet its commitments in an amended plan of development to enable them to place the unit in production by 2013.”
Cook Inlet assets for sale Union Oil has the company’s Cook Inlet properties up for sale, and specified in the fourth POD that should it sell its Nikolaevsk unit interests, the new operator of the unit would be bound by commitments in the plan and would be required to make the same pipeline construction decision by Jan. 1, 2012.
The division accepted the amended fourth POD in March after rejecting an initial fourth POD submitted late last year because it did not provide for putting the unit into production.
Union Oil said in the March 15 fourth amended plan that because Armstrong Cook Inlet installed a gas pipeline due south of the Nikolaevsk unit in January, “it may now be economic for Union Oil to build, or cause to be built, a pipeline to transport Nikolaevsk Unit production to market.” The company is studying the feasibility of building a pipeline from Nikolaevsk to North Fork and the Armstrong pipeline.
During the fourth plan, Union Oil said it would do the work necessary to construct a pipeline including project sanction, surveying, permitting and engineering with the objective of having natural gas flowing from the Nikolaevsk unit in 2013.
Union Oil said it would make a decision by Jan. 1, 2012, whether to build the line and would notify the division.
If the company decides not to build the pipeline, it said it would so notify the division by Jan. 1, 2012, and the leases would be voluntarily terminated, coincident with termination of the unit.
Unit formed in 2004 The Nikolaevsk unit was formed in January 2004; it is near the unincorporated community of Nikolaevsk on the Kenai Peninsula and originally contained nine leases, seven State of Alaska leases and two Cook Inlet Region Inc. leases. The unit contracted twice, in 2006 and 2009, and prior to the present extension included some 5,766 acres in six oil and gas leases, four state and two CIRI.
As part of the extension request, Union Oil would voluntarily contract the unit to include sections 5, 6, 7 and 8 of township 4 south, range 13 west, Seward Meridian. There are 640 acres in a section, so the unit is contracting to 2,560 acres.
As part of the unit extension the division also raised the annual rental rate from $3 an acre to $4.50 an acre, the maximum increase allowed under state statutes.
The Red 1 well, drilled in 2004, tested 3.2 million to 5.8 million cubic feet per day in a 26-hour test, indicating resource potential in the area around the Red 1 well. The size of the accumulation has not been determined, the state said.
The Red 2 well, also drilled in 2004, was tested but there were no measurable hydrocarbons.
The North Fork Unit 11-04 well was drilled in 1970; no testing was performed on the well; it was plugged and abandoned.
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