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December 2008

Vol. 13, No. 49 Week of December 07, 2008

Armstrong Cook Inlet has gas, needs buyer

Company reports successful test of North Fork well, but a gas discovery does not guarantee an instant market in Southcentral Alaska

Kay Cashman

Petroleum News

Armstrong Cook Inlet’s test of a natural gas well drilled this past summer east of Anchor Point on the southern Kenai Peninsula has yielded good results, a company executive told Petroleum News Dec. 3. What the Denver independent needs now is a buyer in Southcentral Alaska that is willing to pay a fair price for the gas; one that will justify the cost of drilling and development.

“We have successfully tested one sand, the main one, and it bore out what we thought it would. We have other sands left to test … but our focus now is on selling the gas,” said Ed Kerr, vice president of land and business development for the Denver-based Armstrong.

Kerr said the North Fork 34-26 well, which lies about 10 miles north of Homer and 15 miles east of the nearest pipeline delivering gas north to the rest of Southcentral Alaska, would be considered commercial almost anywhere in the Lower 48 states. However “the challenge in the Kenai Peninsula will be getting a pipeline to the well economically and receiving a price for the gas that allows for the costs associated with drilling wells to develop the field.”

The company said in past interviews it was willing to drill additional wells to develop the North Fork field if there was a market for the gas in Southcentral Alaska.

What the company hasn’t explicitly explained is that the price it gets for the gas, and its resulting profit, would have to be competitive with opportunities elsewhere in the United States.

The good news for gas buyers in Southcentral Alaska is that Armstrong has gained a reputation on the North Slope for putting together exploration and development projects that were both cost-effective and adhered to tight deadlines.

Interest, but no takers as of Dec. 3

Kerr and another Armstrong official were in Alaska the week of Nov. 9 talking to potential commercial buyers, including “utilities and other end-use gas users.”

Anchorage-based Enstar Natural Gas, which supplies natural gas to much of Southcentral Alaska, was one of those utilities, Kerr acknowledged (see story in the Nov. 23 issue of Petroleum News).

Enstar officials have talked about either building a transmission line to take the gas south to Homer or building a line west to the existing Kenai Kachemak Pipeline, which would essentially take the gas north to existing commercial and residential gas buyers.

The distance south to Homer from the North Fork 34-26 well is “about 10 miles. As a crow flies it’s about 15 miles west” to the KKPL, Kerr said, noting that a transmission line to the KKPL could be as long as 28 miles, depending on which route would be selected by regulators and Enstar.

When asked if he thought North Fork gas would go to Homer first as suggested by at least one Enstar official, Kerr said he didn’t know.

“We’ll have to wait for the proposals (from potential buyers) to come in,” he said. Homer Electric, he said, was not one of the utilities Armstrong officials met with.

“Right now we have no deal with any buyers, and are not close to a deal with one,” Kerr said.

Tyonek Sands tested

On Dec. 3 Kerr did not mention which sands were being tested, nor did he identify the main sand that was successfully tested, but the company had previously said the 9,100-foot North Fork 34-26 well was being drilled into the Tyonek Sands that were proven productive more than 40 years ago by Standard Oil of California at the North Fork 41-35 well, which is about 1,700 feet away from North Fork 34-26 and also on an Armstrong lease.

The first North Fork well, 41-35, has never been produced because there was no pipeline to take the natural gas to market. Potential buyers and state regulators wanted to see North Fork’s natural gas reserves proved up with a second well, especially if the gas was going to be shipped to Homer, which has not had access to natural gas and where a complete gas delivery system would have to be built. Regulators and utilities serving the area did not like the idea of the community being dependent on one well, in case it had to be shut down for any significant period of time.

Previous owners of the North Fork leases had talked about plans to drill a second well, but never carried through on their plans.

That all changed in 2007 when newly formed Armstrong Cook Inlet, an affiliate of Denver-based Armstrong Oil and Gas, which had a proven track record on Alaska’s North Slope, told Petroleum News it had taken over as operator of the North Fork gas unit from the field’s most recent owner, Gas-Pro LLC.

The top executive of all the Armstrong companies, Bill Armstrong, said the North Fork deal, which included the 640-acre unit and nearly 18,000 acres of surrounding and nearby leases, was just the first deal of possibly several more to come.

“We are looking to get active in the Cook Inlet,” Armstrong said at the time. “We think it’s a good time to explore for gas in the Cook Inlet. … We’re looking forward to doing more deals. … Assuming we’re successful, we’ll be doing what was typical for us on the North Slope — a combination of wildcat and development drilling.”

After it purchased the leases and took over as operator, Armstrong CI promptly amended North Fork’s 42nd plan of development to pursue what it described as “aggressive” development of the nonproducing unit’s natural gas. The amended plan included drilling a Tyonek delineation well in 2008.

The North Fork 34-26 well was completed at the end of July. Testing began Oct. 6.






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