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Unocal moves forward on Kenai gas exploration State of Alaska approves southern peninsula Nikolaevsk unit, exploration well targeting Tyonek natural gas required in first year Kristen Nelson Petroleum News Editor-in-Chief
Unocal, which is drilling natural gas development wells and planning a pipeline from its Happy Valley discovery in the Deep Creek unit to connect with the Kenai-Kachemak Pipeline, is also moving ahead on a natural gas exploration program even farther south on the Kenai Peninsula in Southcentral Alaska.
Over the next three years Unocal will drill two exploration wells and shoot seismic at the Nikolaevsk unit on southeast of Deep Creek, the Alaska Division of Oil and Gas said Jan. 29 when it approved the Nikolaevsk unit. The primary target at Nikolaevsk is Tyonek formation natural gas, but Unocal will also test the deeper Hemlock formation for oil.
Alliance Energy of Tulsa, Okla., had applied for a unit at Nikolaevsk in October. Unocal bought out the Alliance interests in December (see story in Dec. 21, 2003, issue of Petroleum News). Nikolaevsk is northeast of the North Fork unit at the southern end of the Kenai Peninsula, where NorthStar Energy Group, with which Alliance is associated, plans to develop natural gas for the Homer market, and has signed a gas supply contract with Enstar Natural Gas Co. Northstar Energy plans to drill at least one additional well to ensure supply and build an eight-mile pipeline to Anchor Point. Enstar will build the line from Anchor Point to Homer, as well as the distribution system within Homer.
“Drilling is under way at several locations along the Sterling Highway to prove up gas supply to meet future Cook Inlet demand,” the state said. “If successful (at Nikolaevsk), Unocal plans to connect these potential new sources. Enstar plans to deliver natural gas to communities along the highway and to supply residential and industrial needs in the Cook Inlet basin.”
Unocal’s amended unit application is for a slightly different area than the Alliance application, the state said, and includes 16,589 acres, of which 15,811 acres (95.31 percent) is in seven state of Alaska oil and gas leases and 778 acres is in two Cook Inlet Region Inc. leases. Five of the state leases would have expired Jan. 31 without formation of the unit; one expires Jan. 31, 2007; the seventh is extended indefinitely because a portion is committed to the North Fork unit south of Nikolaevsk.
All of the state leases pay 12.5 percent royalty. There were a number of working interest owners in the unit proposed by Alliance; Unocal is the only working interest owner in the unit approved by the state.
One of the Cook Inlet Region leases, originally issued by the Bureau of Land Management, has a 12.5 percent royalty; the other, issued by the region, expires Nov. 30, 2008, and has an 18 percent royalty. Two wells, seismic acquisition proposed Unocal’s three-year exploration plan calls for a well in the first year, seismic in the second year and a well in the third year. Alliance submitted a five-year plan beginning with seismic acquisition and the first well in 2004 and a second well in 2005, although it said the first well might not be drilled until 2005.
The state said the anticlinal trend that is the basis for the proposed unit was identified on Cook Inlet geology maps in the 1960s and 1970s. The main structural features in the unit are the North Fork and Ninilchik Dome anticlines, which “comprise, at least in part, the areas of Exploration Block I and Exploration Block III.” Exploration Block II includes “a part of the northeast extension of the North Fork anticline and a part of the southwest extension of the Ninilchik Dome anticline,” the state said.
The North Fork anticline, parallel to the Happy Valley and Deep Creek anticlines northwest of the unit, is approximately three miles wide and 12 miles long, including the area of the anticline in the North Fork unit. Three prospects identified The state said Unocal has identified three potential hydrocarbon accumulations in the Nikolaevsk unit.
“The operator’s primary exploration target is gas in Tyonek formation sandstone of all three blocks in the unit area,” the state said. “However, Unocal also plans to explore for oil in the Hemlock conglomerate by drilling and collecting well logs into that formation in at least Exploration Block I.”
Block I is the most southwesterly area of the Nikolaevsk unit.
Two-dimensional seismic has been acquired across portions of the unit area, the state said, but no successful oil or gas wells have been drilled.
A gas well was drilled southwest of Nikolaevsk by Standard Oil of California in 1965.The North Fork Unit No. 41-35 is a shut-in gas well certified as capable of producing natural gas, and holds the North Fork unit. The well’s primary exploration objective was oil in the Hemlock conglomerate, but when only minor amounts of 30 degree API oil were recovered from the Hemlock, the well was plugged back to the Tyonek, where tests indicated significant gas flow potential. Oil stained core, good gas shows at 1970 Standard Oil well Standard Oil of California drilled the North Fork Unit No. 11-4 in 1970 approximately six miles northeast of the No. 41-35 in what is now Block I of the Nikolaevsk unit. The company “collected oil stained core” from the well and “noted good gas shows but the Hemlock reservoir looked thinner” than at the No. 41-35; the No. 11-4 was plugged and abandoned as a dry hole.
There are known accumulations in the area, the state said: Tyonek formation gas in the Deep Creek unit to the northwest and in the North Fork unit to the southwest and oil in the Cosmopolitan unit to the west.
Unocal has used new seismic log analysis technology to re-examine well data from the old wells and seismic data acquired before 1980 to evaluate natural gas potential in the area, but no one has collected seismic in the area recently, the state said.
The state categorized the presence of hydrocarbons in the Nikolaevsk unit area as “prospective, but relatively unproven,” and said this was especially true of the northeastern portion of the unit.
While Unocal justified the size of the unit based on technical data and its initial plan of exploration, “additional exploration commitments will be necessary to maintain the entire unit area,” the state said. Block I well in first year Unocal’s initial plan of exploration for the Nikolaevsk unit calls for an exploration well in Block I in the first year, to a depth of at least 10,500 feet true vertical depth, “or a depth sufficient to penetrate 200 feet of the Hemlock formation, whichever is less …,” the state said. The bottom hole of this well will be in section 8, township 4 south, range 13 west, Seward Meridian, ADL 02095.
A payment of $50,000 will be due to the state if the well is not drilled by Jan. 31, 2005. Unocal has the option to terminate the unit on or before Jan. 31, 2005, pay the state $50,000, and be released from unit obligations, or may contract acreage in exploration blocks II and III out of the unit by Jan. 31, 2005, and pay $50,000.
If all the exploration blocks remain in the unit at the end of the first year, Unocal will “acquire, process and interpret a sum total of 10 miles of new 2-D seismic lines” in exploration blocks II and III in year two “to delineate the prospects shown in the confidential data” it shared with the state.
If the seismic program is not completed, Unocal would pay the state $70,000 for Block II and $30,000 for Block III, and that acreage would contract out of the unit.
Between Feb. 1, 2005, and Jan. 31, 2006, Unocal can voluntarily terminate the unit, pay the state $100,000, and be released from remaining obligations. The company can also contract out individual blocks: pay $70,000 for Block II or $30,000 for Block III, and submit an amended plan for the remaining unit area.
The year-three requirement is an exploration well in Block II to a depth of at least 9,500 feet true vertical depth, or Block II will contract out of the unit and $200,000 will be due to the state, along with an amended plan for the remaining unit acreage.
If Unocal drills the Block II exploration well in year two, it is relieved of Block II seismic requirements.
The company can voluntarily terminate the unit between Feb. 1, 2006, and Jan. 31, 2007, pay the state $300,000, and be released from remaining obligations, or contract Block II acreage for $200,000 or Block III acreage for $100,000.
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