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January 2011

Vol. 16, No. 4 Week of January 23, 2011

State denies Red PA at Nikolaevsk unit

Kristen Nelson

Petroleum News

The Alaska Department of Natural Resources’ Division of Oil and Gas has denied an application by Chevron subsidiary Union Oil Company of California to form the Red participating area in the Nikolaevsk oil and gas unit on the Kenai Peninsula.

A Jan. 18 decision signed by both division Director Kevin Banks and DNR Commissioner Dan Sullivan said Union requested the participating area to help it market the Nikolaevsk unit to encourage development by unspecified third parties, including building a gas pipeline to the Nikolaevsk unit.

Union filed for the participating area in February of last year

Union drilled and completed two exploration wells in the proposed Red participating area in August of 2004; other areas have contracted out of the unit. Initial work was done under exploration plans.

The first Nikolaevsk unit plan of development was approved in 2008 and required two wells — one in the Red prospect and one in the Blue prospect.

Cook Inlet efforts scaled back

When Union submitted its second plan of development in early 2009 it notified the state that it had scaled back its 2009 Cook Inlet development efforts due to market conditions, concluded that lack of a pipeline to the Red prospect impeded further unit development and had no current work plans for the unit.

Due to lack of drilling the unit was contracted down to the Red prospect in March 2009.

Union applied in early 2009 for a 26-month extension of the unit agreement, through March 2011, based partly on the grounds that the state had implicitly agreed to an extension when it approved the first and second plans of development.

In its Jan. 18 decision the state said DNR approved the second plan of development which provided that if Union did not farm out the Red prospect by the end of March 2010, it would apply to put Red Well 1 in shut-in status and apply to form a participating area within the Red prospect. Union said it needed until the end of March 2011 to form the participating area and in May 2009 the division approved the extension.

Third plan not approved

The third plan of development, covering March 2010 through March 2011, did not include work plans for exploring, developing or producing the unit; the plan said Union was attempting to farm out the Red prospect and intended to establish a participating area.

The division disapproved the third plan because it did not set out work plans, but suggested changes Union could make: initiating permitting activities for a gas pipeline; securing a gas sales contract for Nikolaevsk unit production; beginning production from the unit.

Union appealed disapproval of the third plan of development.

DNR said Union gave two reasons for formation of the Red participating area in its application: it would help Union farm the unit out or find a company to take over the Red prospect and it might encourage third parties to build a pipeline to the unit.

“No supporting facts were offered to support either claim,” DNR said in its denial, noting that Union “has never submitted a unit plan that proposed production.”






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