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THE INDEPENDENTS 2003: Northstar strikes deal to build gasline to Homer Company looking to expand unit from 640 acres to almost 27,000 acres, drill second well Kay Cashman Petroleum News
It’s not a done deal yet and won’t be until a second well is drilled and sufficient gas reserves have been established, but Northstar Energy Group is getting closer to producing natural gas from its shut-in North Fork field and marketing that production to the residents of Anchor Point and Homer.
The Tulsa-based firm announced it wanted to build a gas pipeline from its North Fork unit to Anchor Point and Homer on April 26, the day after Unocal said Kenai Kachemak Pipeline LLC’s gas line from Kenai would terminate in Ninilchik versus further south at Anchor Point or Homer. Northstar’s announcement was met with skepticism. It was a major project for such a small firm — and a project that bigger players in the Cook Inlet basin — i.e. Unocal and Marathon Oil, partners in Kenai Kachemak Pipeline — had rejected.
Northstar, which purchased Alaska-based Gas-Pro in 2000 and, with it, key leases in the southern Kenai Peninsula’s North Fork unit, decided to build the southern line when Unocal announced April 25 that Kenai Kachemak Pipeline would terminate the Kenai-Kachemak gasline in Ninilchik versus further south at Anchor Point or Homer.
Less than 14 months later Northstar Energy had filed to expand its North Fork unit from 640 acres to almost 27,000 acres, drill a second well in the unit, and struck a gas supply deal with Enstar Natural Gas that called for the two companies to build a gas line east from the North Fork unit to Anchor Point and then south to Homer. Enstar filed a request with the Regulatory Commission of Alaska Aug. 8 for approval of the 20-year gas supply contract and for approval of a proposed tariff.
Gas price based on Henry Hub The regulatory commission said in August that the gas price will be based on a 36-month daily average of the Henry Hub natural gas futures with a floor price of $3 per thousand cubic feet adjusted for one-half of inflation plus applicable taxes and transportation fees. Homer customers would pay a line-extension surcharge of $1 per mcf to cover pipeline costs.
Two wells, gas reserves for 20 years The agreement between the two companies called for Northstar to build an eight-mile transmission line from its North Fork unit to Anchor Point. There, Enstar would purchase the gas and send it south along a 10 to 11 mile transmission line to Homer and through a distribution system that Enstar said it would build once Northstar can guarantee a 20-year uninterruptable supply of gas.
As part of the deal, Northstar has to drill a second well to ensure a reliable source of natural gas for Homer should one well need to be shut down for any reason.
Without the second well, there will be no gas line to Homer, said Charlie Pierce, southern division supervisor for Enstar, in October.
“The last thing we want to do is build a distribution system and hang it on one well,” he said. “We'd never do that.”
Pierce said he expects Northstar to know within the next nine months if a second well had tapped the necessary supply of gas. Northstar hopes to connect to KKPL Larry Snead, manager of land and contracts for Northstar Energy, told Petroleum News Aug. 19 that the “most exciting thing about it for us is that as a part of that agreement we will be building a line from the North Fork field to Anchor Point.”
Enstar will take the gas for delivery at Anchor Point, he said.
“But building a line to Anchor Point allows us the opportunity to build a line north to hook up with terminus of KKPL (the new Kenai Kachemak Pipeline between Kenai and Ninilchik). It is our intent to pursue that.”
Part of the reason Northstar is looking at also going north with its gas is because the Homer market “is too small a market to justify development of a single well,” the company said in public comments to the regulatory commission in earlier testimony involving the KKPL.
The North Fork gas field was discovered by Standard Oil of California in 1965, Northstar said, but the well at the field has been shut-in since that time because there was no way to move the gas to market.
Up to two years for gas delivery Dan Dieckgraeff, Enstar’s manager of finance and rates, told Petroleum News Aug. 19 that it will probably take a year and a half to two years to begin delivering gas.
“First of all the commission has to approve the contract and the proposed rate,” he said, a process which could take six months to a year.
Then Northstar has to drill at least one additional well to ensure reserves and deliverability of natural gas, and then an independent registered engineering firm has to certify the reserves, Dieckgraeff said. Then both companies have to build the pipelines, and Enstar also has to build the Homer distribution system.
At the end of three years of service Enstar expects to be serving 1,500 customers in Homer, he said. The 10 to 11 mile four-inch pipeline to Homer will cost about $3.5 million.
Hooking up customers to a distribution system is nothing new for Enstar, Dieckgraeff said. The company adds 2,500 to 3,000 customers a year in the Anchorage, Matanuska-Susitna and Kenai-Soldotna areas, so adding 1,500 customers over a three-year period won’t be a problem.
Northstar wants to expand unit Northstar applied to the U.S. Bureau of Land Management and the Alaska Department of Natural Resources to expand its North Fork unit from 640 acres to almost 27,000 acres, a BLM official told Petroleum News Aug. 28.
“The original unit, (formed) back in the 1960s, was 57,000 acres and Northstar is looking at the same play,” he said. The original field owners “drilled a well there (part of Northstar’s 640 acre North Fork unit) and discovered gas, but there was no market. Now there’s a market.”
BLM said Northstar plans to drill a second well in the first part of 2004.
The first North Fork unit was operated by Standard Oil of California, now ChevronTexaco — is one of the leaseholders in Northstar’s proposed unit expansion, BLM said.
Other leaseholders include ConocoPhillips, Marathon Oil, Gas-Pro (acquired by Northstar in 2001), Alliance, Aurora Gas, Alliance and Jim White.
The companies with the most acreage in the expansion area are Gas-Pro, ConocoPhillips and Marathon.
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