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Gas-Pro plans CNG production at North Fork Rising gas prices encourage NorthStar affiliate Gas-Pro to seek novel approach to gas production on southern Kenai Peninsula Alan Bailey Petroleum News
In the summer of 2006 it was starting to look as if time had finally run out for Gas-Pro Alaska’s North Fork unit, in the southern part of Alaska’s Kenai Peninsula. An agreement with Enstar Natural Gas Co. for the supply of North Fork gas to the city of Homer seemed to have run aground and the U.S. Bureau of Land Management was threatening to terminate the unit.
But events since then have pointed to a change of fortune. And in its latest plan of development for the unit Gas-Pro says that it has customers for the North Fork gas and that it plans to truck compressed natural gas from the North Fork well, starting by early June.
“We’re just excited about finally getting moving up there,” Barry Foote, Gas-Pro vice president, told Petroleum News on March 6. “… This is a pioneering venture for Alaska.”
North of Homer North Fork lies inland in the Kenai Peninsula a few miles north of the City of Homer. In 1965 Standard Oil of California struck natural gas in the North Fork 41-35 well when searching for oil in the area.
Gas-Pro Alaska LLC acquired the North Fork unit from Unocal in 1996 and NorthStar Energy bought Gas-Pro in 2000. In 2001 NorthStar tested the 41-35 well and reported a flow of 4 million cubic feet per day of natural gas from one interval at 8,500 feet. In 2003 NorthStar struck a deal with Enstar to supply gas from North Fork to Homer. The deal involved Alliance Energy, a sister company to NorthStar, building a pipeline from North Fork to Anchor Point, a few miles northwest of Homer, and Enstar building a pipeline from Anchor Point to Homer.
However, both Enstar and the Regulatory Commission of Alaska required that pipeline construction be contingent on drilling a second North Fork well, to raise proved reserves in the field from 12 billion cubic feet to 14.5 bcf, to ensure a 20-year gas supply for Homer.
That second well has never been drilled.
The North Fork unit included both federal and State of Alaska land and was administered by the U.S. Bureau of Land Management. In March 2006 BLM informed NorthStar that the unit would be terminated on Oct. 1 if a second well were not drilled in the unit.
But on Nov. 1 the title to the federal land within the North Fork unit was conveyed to the State of Alaska as part of the land transfers emanating from Alaska statehood. The Alaska Department of Natural Resources took over administration of the unit from BLM and extended the North Fork unit to March 31, 2007, provided that Gas-Pro met certain conditions, including the submission of the 42nd plan of development for the unit.
Novel idea Gas-Pro has now submitted that 42nd plan of development and, in doing so, has proposed the novel idea of trucking compressed natural gas from the single North Fork well to the Kenai Kachemak pipeline. The Kenai Kachemak pipeline runs north up the peninsula coast from Ninilchik and Chevron’s Happy Valley unit.
The plan says that an incorrect claim by Enstar that Gas-Pro had repudiated the 2003 NorthStar gas supply agreement for Homer had derailed Gas-Pro’s negotiations for financing of a second North Fork well.
“We believe that we are doing everything in our power to develop our leases and create royalty revenue for the State of Alaska and better the living conditions of its citizens in the lower Kenai Peninsula,” said Gas-Pro Manager Sam Nappi, in submitting the plan to DNR.
The plan only applies to a one-year period, starting after March 31.
Production from North Fork should start on or before June 1, 2007, and result in 500,000 cubic feet of gas per day from the well within the first month of operation. Production would ramp up to 1 million cubic feet per day on or before June 1, 2008, the plan of development said. Those productions rates are well below the maximum flow rate for the well, as reported from the 2001 flow testing.
Improved economics Foote said that rising natural gas prices in Southcentral Alaska had swung the economics to favor producing compressed natural gas from North Fork.
“With the prices where they are the numbers finally work that we can truck it out of there,” Foote said, adding that the trucking of compressed gas might prove to be a useful approach to gas production elsewhere in the region.
Treating the gas and loading it into trucks will initially happen right at the wellhead, although in the longer term a pipeline from the well to a nearby five-acre Gas-Pro plot is a possibility, Foote said. The North Fork well is close to the state-maintained North Fork Road, he said.
“Much of the legwork and preliminary studies regarding acquisition of the required compressed natural gas equipment and the necessary permits and regulatory approvals has been done,” the plan of development says.
Gas-Pro is forming a new company called Anchor Point Energy LLC for the day-to-day operation of the gas production and expects to hire local people, especially from the nearby community of Anchor Point.
“We have great support from Anchor Point,” Foote said.
Gas-Pro has been closely following recent ideas from Enstar for a southerly extension to the Kenai Kachemak Pipeline: Enstar has proposed extending the pipeline south to Homer either along the coast via Anchor Point, or directly south from the Happy Valley gas field via the Red well in the Chevron-operated Nikolaevsk unit (see “Enstar moves forward on Homer gas line” in the Feb. 25 edition of Petroleum News).
The inland pipeline route would pass close to North Fork and provide Gas-Pro with a convenient pipeline route for the marketing of North Fork gas. But the company would look at the potential to hook into a pipeline on either of Enstar’s proposed routes.
“We’d do what we have to do,” Foote said.
And Enstar’s announcement of its pipeline ideas has spurred Gas-Pro into considering the drilling of a second North Fork well in 2008, Foote said. Gas-Pro is negotiating “with drilling partners to join us in developing a well drilling program for the North Fork unit and adjoining leases,” the plan of development says.
More open market But, what is the market for the North Fork gas?
“For the first time in several decades, there is now a more open market for gas in the Anchorage/Kenai area, particularly a secondary market in which Gas-Pro Alaska intends to participate,” the plan of development says.
Gas-Pro has “an agreement in principle with a major oil company/large user … for the purchase of up to 2 million cubic feet per day from the North Fork Unit No. 41-35 well,” the plan says. The plan also says that Gas-Pro is discussing additional gas sales to that initial buyer and to “several other large users and providers who have all expressed interest in gas, particularly peaking gas.” And, in “the context of additional gas sales, Gas-Pro has signed a non-disclosure agreement with Chugach (Electric) with the intention of entering into a gas supply contract with them,” and is negotiating with Agrium “concerning the provision of gas to its Nikiski fertilizer plant,” the plan of development says.
Gas-Pro also says that it is discussing with Alchem Field Services the viability of a gas-to-liquids plant for the production of diesel fuel. The company also says that it has made an offer to Chevron for the possible use of the Red well as a back up well, if the 2003 Homer gas supply agreement with Enstar were to be implemented.
DNR will rule by March 31 on whether to accept the plan.
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