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North Fork pipeline moving forward RCA expands Enstar area, Armstrong plans seismic, Chevron appeals Nikolaevsk decision, possible routing conflict brewing Eric Lidji For Petroleum News
The state plans to issue a right-of-way lease for a new pipeline on the Kenai Peninsula.
In a May 28 proposal, Commissioner of the Department of Natural Resources Tom Irwin found Anchor Point Energy to be fit, willing and able to build the North Fork pipeline.
Anchor Point Energy, a subsidiary of independent producer Armstrong Oil and Gas, plans to build two 4-inch pipelines to move natural gas 7.4 miles from a production pad at its North Fork unit, north of Homer, to Anchor Point, near the Cook Inlet coast.
Combined, the lines could move up to 18 million cubic feet of natural gas per day.
The lines would then connect to a new pipeline being permitted by Enstar Natural Gas.
The proposal now goes out for public comments through July 6, and a public hearing at the Anchor River Inn on June 29, after which Irwin will make a final decision.
Armstrong hopes to start construction this September and finish by March. Under the lease terms, the company would have two years to start work or risk forfeiting the lease.
Armstrong sanctioned the pipeline as part of a 2009 gas supply contract with Enstar.
Another piece of the puzzle The North Fork pipeline would make major inroads toward developing the southern Kenai Peninsula, a region of the state with known gas reserves, but little development.
In his proposed decision, Irwin noted that the pipeline “has the potential to make other marginal gas fields more economical and more likely to be developed.” North Fork is near the Chevron-operated Nikolaevsk unit and leases held by several independents.
Chevron, though, wants infrastructure closer to Nikolaevsk.
In the regulatory proceedings over the proposed Enstar pipeline, called the Anchor Point Pipeline, Chevron suggested a route from Happy Valley south, closer to Nikolaevsk, where Chevron previously delineated two prospects, known as “Red” and “Blue.”
Enstar is currently proposing a route down the Sterling Highway.
Enstar said Chevron’s route would bypass Anchor Point, a city with 1,800 people, and increase the eventual cost of bringing gas to Homer, a city of more than 5,000 people.
Chevron also wants a guarantee that the North Fork pipeline will be a common carrier line, meaning open to third-party gas. That would provide an incentive for Chevron and other leaseholders in the region to develop known reserves and explore for new reserves.
Armstrong doesn’t expect future developments to cause a problem.
“Besides the capacity and pressure constraints, we are unaware of any reasons why sales quality gas from a new development could not tie in to our proposed pipeline,” the company wrote in filings.
The two pipelines, though, would connect near another development in the region: the Cosmopolitan unit currently being developed by Pioneer Natural Resources. While Pioneer sees Cosmopolitan as primarily an oil play, it expects some gas resources as well.
Pioneer plans to start drilling this year, with first oil scheduled for 2014.
A conflict at Nikolaevsk Chevron doesn’t have much work planned at Nikolaevsk.
The company, through its affiliate Union Oil Company of California, relinquished the Blue prospect last year, because it chose not to drill new wells, and wasn’t able to farm out the Red prospect, both requirements set out in previous plans of development.
In late 2009, Chevron proposed a third plan of development for the Nikolaevsk unit, but did not make any drilling commitments, saying it was scaling back Cook Inlet exploration and development activities for 2010 due to “current market conditions.”
Chevron also said the lack of infrastructure “further impedes the timing of further exploration and development” at Nikolaevsk, but noted “Armstrong’s current work at North Fork may stimulate construction of a pipeline route from Happy Valley that could be tied to Red, which may in turn enhance the farmout opportunities at Nikolaevsk.”
The state rejected that development plan, noting that the proposed North Fork and Anchor Point pipelines would bring infrastructure to within two miles of Nikolaevsk.
The state suggested some revisions: permit a pipeline by March 2010, sign a gas supply agreement by September 2010 and start producing from Nikolaevsk by March 2011.
Rather than file a revised plan of development, Chevron appealed the ruling, saying it should have until March 2011, an extended deadline for the unit approved last year, to consider development options. Chevron noted that it is still looking for farmout opportunities, and that it recently applied to form a Red participating area at the unit.
More NFU wells possible Armstrong, meanwhile, is planning additional work through a 45th plan of development.
The company contracted PGS Onshore Inc. to conduct a 3-D seismic survey over 20 square miles of the North Fork area. Armstrong wants to shoot that survey this year.
The results of that survey would guide future drilling. Depending on timing, Armstrong said it could potentially drill two North Fork wells into the Tyonek formation this year.
Even if those new wells don’t come to pass this year, Armstrong said it “may be testing additional sands in the NFU No. 34-26 wellbore and re-completing the NFU No. 41-35 during the 2010 drilling season.” NFU No. 34-26 is the well Armstrong drilled in 2008, while NFU No. 41-35 is a nearby well Standard Oil of California drilled back in 1965.
Enstar gets RCA approval The Anchor Point pipeline, the pipeline Enstar plans to run up the Sterling Highway to the end of the Kenai Kachemak Pipeline, is making regulatory headway as well.
The Regulatory Commission of Alaska recently extended the service area of the Alaska Pipeline Co., an Enstar affiliate, to Anchor Point from its current southern reaches at the Happy Valley Extension of the Kenai Kachemak Pipeline in Ninilchik.
Several issues remain unresolved, though.
First, Enstar asked the RCA to approve construction of the proposed Anchor Point Pipeline, but the RCA chose not to rule on that matter in the current docket.
Second, the possibility for future conflict remains. In a concurrent statement, RCA Commissioner Kate Giard noted that if Armstrong ultimately needs a certificate of public convenience and necessity for the North Fork Pipeline, or Enstar needs a state right-of-way lease for the Anchor Point Pipeline, state statute requires a 30-day public comment period.
Giard said Chevron’s comments “indicate that there may be tension as to the location and routing” of a new pipeline, adding that “a contested application process will take longer to resolve.” Giard suggested the two companies file applications as soon as possible.
Enstar, meanwhile, insists it does not need a right-of-way lease from the state, recently citing a newly passed state law that makes exceptions for extensions to existing lines.
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