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State denies Kenai Loop unit Claims Buccaneer using unitization process to extend lease terms; Buccaneer plans to appeal, calling ruling ‘unprecedented’ Eric Lidji For Petroleum News
The Alaska Department of Natural Resources will not unitize the Kenai Loop field, saying the “primary propose” of the request from Buccaneer Alaska Operations LLC appears to be “lease extension and not the efficient development of the unit area.”
The proposed unit would have covered some 7,500 acres over four State of Alaska leases, two Alaska Mental Health Trust leases and one Cook Inlet Region Inc. lease near the city of Kenai.
The four state leases all reached the end of the primary term on Sept. 30, 2012, but were temporarily extended by the unitization process. The three non-state leases are all set to reach the end of their primary terms in the first quarter of 2016, but according to the ruling CIRI has recently terminated its lease with Buccaneer.
In its proposed plan of development for the unit, Buccaneer said it would drill between one and three wells each year for five years at Kenai Loop, but Division of Oil and Gas Director Bill Barron said the proposal lacked detail about the wells. Specifically, Barron criticized the development plan for not detailing surface and bottom hold locations.
The four state leases accounted for 19 percent of the unit. “Granting unitization would extend the term of the state leases; however there is no specific plan of exploration or development on the state land. There is no commitment to develop state land,” he wrote.
Additionally, Barron said the plan was “inadequate” because it was “more like a Plan of Exploration than a Plan of Development. Buccaneer is not committing to the development of a proven reservoir. It is offering to drill wells to look for hydrocarbons.”
And because Buccaneer is the sole working interest owner of the seven leases, unitization is not necessary to “obtain coordinated development of the leases,” according to Barron.
Company to appeal Buccaneer plans to appeal the ruling.
“Buccaneer has spent over $50 million dollars exploring and developing the Kenai Loop leases. We have drilled three wells, reprocessed 2D seismic, and shot new 3D seismic. We have also moved multiple leases into production,” the company said in a statement. “Given the level of activity and ongoing production, we were surprised by the Division’s unprecedented decision. We are not aware of DNR ever denying a unit application where a lessee is producing from multiple leases, has identified additional resources within the unit area, and has committed to expanding development and drilling additional wells.”
To date, Buccaneer has drilled three wells at Kenai Loop — the Kenai Loop No. 1 discovery well, the Kenai Loop No. 3 dry hole and the recent Kenai Loop No. 4 — completed a 23.4 square mile 3-D seismic survey over its leases and is reprocessing data from six previous 2-D surveys shot by various companies between 1974 and 1982.
MHT lease producing The producing Kenai Loop No. 1 well is on Alaska Mental Health Trust lease MHT 9300082 and appears to be draining some hydrocarbons from ADL 391094. As such, the state agreed to hold the lease by production until it can address the issue specifically.
While Barron denied the unit, he said the decision did not preclude the Alaska Mental Health Trust from unitizing its leases, and subsequently extending its lease terms.
According to the state, confidential geological and geophysical data suggests the potential for additional hydrocarbon accumulations at Kenai Loop, but the Kenai Loop No. 3 dry hole “shows that another portion of the proposed unit is not underlain by hydrocarbons.”
Although Buccaneer completed Kenai Loop No. 4 in late 2012, the company did not provide the state with well data, according to the ruling. However, Buccaneer issued a press release in mid-February saying it brought Kenai Loop No. 4 online on Feb. 10, 2013, and the well was producing at a preliminary rate of 2 million cubic feet per day.
Buccaneer applied to form the unit in July 2012. After requiring the company to submit additional information, the state released the application for comments in December.
Question about CIRI lease Among the reasons Barron gave for denying the unit was the fact that CIRI terminated its Kenai Loop lease with Buccaneer in January, making aspects of the application outdated.
In his ruling, Barron said that CIRI notified the state on Jan. 9 about the termination, but said CIRI failed to provide any explanation for its decision. In a March 19 email to Petroleum News, CIRI spokesman Jason Moore said, “We don’t feel it would be appropriate to comment on this issue at this time, other than to say the state is not inaccurate.” Petroleum News requested a copy of the Jan. 9 notification from the Division of Oil and Gas, but was unable to get a copy by the time the issue went to press.
Buccaneer officials were unavailable to comment on the lease.
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