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Cook Inlet independents on the move Small companies seek ways to ferret more oil and gas through exploration and from the continuing development of existing fields Alan Bailey Petroleum News
Although major companies such as Chevron, Marathon and ConocoPhillips have for many years dominated Alaska’s Cook Inlet oil and gas industry, tightening supplies of utility natural gas and buoyant oil prices have encouraged a series of much smaller companies to try their hands at teasing more petroleum resources out of the Cook Inlet basin. And at an Anchorage Chamber of Commerce meeting on Feb. 7 three of these companies, Aurora Gas, Cook Inlet Energy and Buccaneer Alaska, described their efforts and plans to bolster Cook Inlet oil and gas production.
Aurora Gas Of the three companies, Aurora has been around in Alaska the longest, having been formed in 1999 primarily to seek opportunities to develop gas accumulations in the Cook Inlet basin. The company operates five modest-sized gas fields on the west side of the Inlet. Aurora has worked over or drilled more than 20 wells, the company President Scott Pfoff told the chamber audience.
Five of those wells were exploration wells, with just one of those wells finding a viable resource, Pfoff said. The company has only drilled one well on the east side of Cook Inlet, an oil exploration well in the southern Kenai Peninsula that turned out to be a dry hole.
“This is a risky business,” Pfoff said. “Sometime I think we get desensitized to that.”
Pfoff said that, following some permitting concerns, Aurora has reduced its Cook Inlet lease acreage by about a half, to about 66,000 acres — the company holds leases on both sides of the inlet. With a focus on marketing its gas, the company proposes to drill two new wells in 2011 but may farm out some or all of its exploration acreage, he said. Aurora will also be changing its company structure in the coming years, he said.
Access issues There are land access and regulatory access issues for companies operating in the remote territory on the west side of Cook Inlet, and there are also issues relating to access to capital for companies such as Aurora, Pfoff said. Investors are generally willing to take geologic risk but are not so willing to put money into situations where there is a significant commercial risk from issues such as fiscal stability and access to markets, with both of these issues having impacted Cook Inlet, he said.
In the summer of 2010 Aurora successfully tried using hydraulic fracturing in a well in its Three Mile Creek field. The technique, similar to the “fracking” done in Lower 48 shale gas wells, was applied to the field reservoir in a conventional gas well, with the effect of boosting gas production, Pfoff later told Petroleum News.
Aurora hopes to use the same technology in other wells and is also interested in the potential to use modern fracking techniques in other Cook Inlet situations, such as in tight gas sands or perhaps in gas source rocks, Pfoff said. And Aurora has for some time been interested in the potential to develop coalbed methane in and around its leases, especially given that those leases are in remote locations, near the pipeline infrastructure but far from population centers.
10-year supply Aurora has estimated that there is a coalbed methane resource equivalent to at least a 10-year gas supply for Southcentral Alaska just in the areas around the company’s leases, Pfoff said.
“The resource potential is huge,” he said, also commenting that any development would need to be carried out in a way that avoids the pitfalls encountered in the past with Alaska coalbed methane proposals.
Aurora has also been promoting the use of a depleted reservoir in its Nicolai Creek field as a gas storage facility, to alleviate potential utility gas delivery shortfalls in the winter. The reservoir is fairly small but could provide relatively high injection and withdrawal rates, thus bolstering peak gas delivery in severe cold. Aurora has been seeking customers for its gas storage concept.
“The location is on the west side of Cook Inlet and when we experience periods of high demand that is a great place to have some extra deliverability,” Pfoff said.
But Aurora cannot build the facility on spec — it needs support from utilities, he said.
Cook Inlet Energy David Hall, CEO of Cook Inlet Energy LLC, the subsidiary of Tennessee-based Miller Energy Resources, the company that in 2009 purchased the Cook Inlet assets of Pacific Energy Resource, described his company’s efforts to revitalize those assets while also seeking new Cook Inlet opportunities.
“We are asset rich, so trying to take those assets and turn them into critical oil and gas production is our next step,” Hall said. Hall emphasized the importance of the state tax credit program in supporting his company’s plans.
Immediately after acquiring its assets, the company restored some oil and gas production from its operational fields — the company is moving on several fronts to push production up, evaluating each one of its existing wells and working over six wells in the West McArthur River unit in 2010, Hall said. Oil production from the West McArthur River field is now about 930 barrels per day and seems to be pretty steady, he said.
“In 2010 we generated over $18 million in gross revenue,” Hall said, adding that in that same year the company had acquired another 17,000 acres of leases in a state lease sale.
The Osprey platform, the centerpiece of the troubled Redoubt Shoal oil field offshore the west side of Cook Inlet, remains shut-in following the bankruptcy of Pacific Energy. The platform is in excellent condition — Cook Inlet Energy wants to bring the field back into operation and is working with the Alaska Industrial Development and Export Authority to investigate the potential for the permanent placement of a drilling rig on the platform — periodically mobilizing a rig to and from the platform is a very expensive operation, Hall said.
There are six wells that between them that were producing nearly 2,000 barrels of oil per day that now have mechanical problems that Cook Inlet Energy wants to repair, although some of those wells could be repaired quite simply with a device called a “snubbing unit.”
The company has identified some locations for potential exploration and development wells that could be drilled from the platform, Hall said.
New opportunities Cook Inlet Energy is also seeking new resource development opportunities near the West McArthur River unit and wants to build a new grind-and-inject facility near that unit for the disposal of drilling cuttings. And the settlement of a tariff dispute for the Cook Inlet pipeline, used to transport oil from fields on the west side of the Cook Inlet, has resulted in a significant tariff reduction, although Cook Inlet Energy still wants to find ways of reducing the cost of transporting its oil to the Tesoro refinery on the Kenai Peninsula, Hall said.
Cook Inlet Energy’s assets include the onshore state-of-the-art Kustatan production facility, used to process oil from the Osprey platform. With a 16-megawatt power plant at Kustatan and a 3-megawatt plant at West McArthur River, the company is investigating the potential to export power, as well as looking for opportunities to use its facilities to process other companies’ oil and gas, Hall said.
Outside its operating units, Cook Inlet Energy is seeking new Cook Inlet exploration opportunities and has been evaluating some 2-D seismic data acquired by Forest Oil, a previous owner of the leases purchased from Pacific Energy. Cook Inlet Energy has also obtained a three-year extension to its 471,000-acre state exploration license in the Susitna Valley.
Buccaneer Alaska Jim Watt, president and CEO of Buccaneer Alaska, told the chamber audience that Buccaneer Alaska’s parent company, Buccaneer Energy, has existing oil and gas production in Texas and the Gulf of Mexico, but that Cook Inlet is the company’s main area of growth. The company currently holds about 79,000 acres in leases in the Cook Inlet region.
“The real focus of growth … and what will make Buccaneer really and truly an Alaska company is the opportunities that we have onshore and offshore the Cook Inlet,” Watt said, adding that the Buccaneer’s core team in Alaska has more than 100 years of Alaska oil and gas experience.
Watt described his company’s plan to bring a jack-up drilling rig to the Cook Inlet to test his company’s offshore Southern Cross and Northwest Cook Inlet prospects. The company has aligned with a Gulf of Mexico drilling contractor, has formed a company called Kenai Offshore Ventures to operate the rig, and is seeking funding assistance from AIDEA, Watt said.
Rig acquisition has not been finalized, but the rig that the company has found is capable of drilling to 25,000 feet in water depths from 15 to 300 feet, is constructed from steel suitable for use in temperatures as low as minus 10 C, can cantilever over an existing platform and has a track record of operating in the challenging environment of the North Sea. And because the rig is located in Singapore, Buccaneer will not need a Jones Act waiver to bring it to Alaska on a foreign flagged vessel.
The rig has a well riser system that can accommodate the Cook Inlet tidal currents, Watt said.
Four offshore wells Buccaneer plans to drill four offshore wells over a two-year period with the rig, starting this year. Onshore, the company is permitting the drilling of three wells in its Kenai Loop prospect near the city of Kenai, with two of those wells being drilled in 2011 and the first well scheduled to be started in March. In 2012 the company also plans to drill in its West Eagle prospect, in the southern Kenai Peninsula — this is one of the few onshore structural highs remaining to be investigated in the Cook Inlet basin, Watt said. On the west side of Cook Inlet, Buccaneer plans to drill in its shallow West Nicolai gas prospect in 2012.
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