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Vol. 15, No. 46 Week of November 14, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

The Explorers 2010: Chevron pulls plug

Cook Inlet assets for sale, holding onto North Slope, ANWR leases

Kristen Nelson

Petroleum News

Chevron said Oct. 12 that it plans to market all Cook Inlet assets owned by Union Oil Company of California and Chevron U.S.A. Inc.

Chevron said producing properties will be offered as a single package. Marketing efforts are expected to begin in the near future. The company has a workforce of some 450 employees and contractors in Alaska.

“We are proud of our legacy and the dedicated and talented workforce that has developed and operated these assets safely and responsibly for many years,” John Zager, general manager for Chevron in Alaska, said in the company’s statement. “We will continue to focus on safe and reliable operations as we pursue the opportunity for another company to acquire these assets and further develop their potential,” he said.

“We believe that finding a company that views the Cook Inlet as a vital, core asset will benefit the employees, the community and the state in the long run,” Zager said.

Assets to be divested include interests in the Granite Point, Middle Ground Shoals, Trading Bay and MacArthur River fields; interests in 10 offshore platforms; interests in onshore gas fields including the Ninilchik unit and the Beluga River unit; and two gas storage facilities.

Chevron said current net production from the assets is approximately 4,000 barrels of oil per day and 90 million cubic feet of natural gas per day.

Concurrent with the Cook Inlet producing property divestitures, Chevron said it will also include the divestiture of its interests in the Cook Inlet Pipe Line Co. and the Kenai Kachemak Pipeline.

From the beginning

Chevron acquired Unocal in 2005. Both companies have long histories in Cook Inlet, as indicated by field discoveries with which the companies are credited.

Cook Inlet fields discovered by Chevron (Standard Oil Company of California when early discoveries were made in the 1960s) include Beluga River (1962); Ivan River (1966); Falls Creek (1961) — now part of the Ninilchik unit; North Fork (1965); and Stump Lake (1978).

Cook Inlet fields discovered by Unocal include Trading Bay (1965); McArthur River (1965); the Kenai gas field (1959); Pretty Creek (1979); and Sterling (1961).

But it’s a long time since a major discovery in Cook Inlet. Crude oil production peaked in 1970 at more than 227,000 barrels per day and, today averages less than 10,000 bpd. Natural gas production peaked in 1996 and is also in decline.

A last hurrah

After Chevron acquired Union in 2005 there was concern that the Cook Inlet assets might be sold off, but as Zager told committees of the Alaska Legislature in March 2006, the Alaska team worked hard to convince Chevron management that the assets were worth keeping, and Chevron approved a multiyear investment program for Cook Inlet, even though “Cook Inlet offshore assets are financially challenged.”

Unocal’s Cook Inlet wells produced 200,000 barrels per day at a peak in the 1970s, Zager said, but in 2006 production was closer to 12,000 bpd.

Attempts to increase production from existing assets have been disappointing. In March 2008, Chevron drilled two wells to try to bring on new oil from the Anna platform in the Granite Point field, but the company said in November 2008 that results from those Anna wells were disappointing.

Mother Nature didn’t help, either: All oil production on the west side of Cook Inlet was put on hold after Mount Redoubt volcano erupted in early 2009, causing the temporary shut-in of the Drift River oil terminal at the base of the volcano — the only means of exporting oil from west side platforms and fields.

The terminal reopened in August 2009, but the tank farm was bypassed and tanker loading was from oil piped directly to the Christy Lee platform offshore the terminal from storage tanks at the Granite Point and Trading Bay production facilities. The terminal shut-in caused oil fields on the west side to be shut-in for several months, with possible long-term impacts on field production rates.

No longer of interest

As Cook Inlet production declined over the years, properties have changed hands among operators.

Past consolidations left Unocal the dominant oil producer in the area while Marathon — another early Cook Inlet player — became a gas-only producer.

Smaller operators have come and gone, but Cook Inlet lost one major in 1998 when Shell, which operated two platforms in Cook Inlet’s Middle Ground Shoals field, sold that interest to XTO (recently acquired by ExxonMobil), which did more drilling from the platforms.

That is evidently the type of company Chevron is hoping to attract to its Cook Inlet assets — a smaller company which would focus on developing remaining resources from existing facilities.

North Slope interests

Chevron will retain its North Slope interests which include: a 10.52 percent working interest in the Endicott participating area at the Duck Island unit (acquired with the Unocal purchase); a 4.95 percent working interest in the Kuparuk River unit (also from the Unocal purchase); a 25.14 percent working interest in the terminated Point Thomson unit, under litigation between the companies and the State of Alaska; a 1.16 percent interest in the Prudhoe Bay unit; and leases in the Arctic National Wildlife Refuge, where operator Chevron was a partner with BP in the KIC well. Chevron also holds, through Unocal Pipeline Co., a 1.36 percent ownership in the trans-Alaska oil pipeline.

The companies have approximately 62,125 net acres on the North Slope, including acreage at White Hills on the central North Slope south of the Kuparuk River unit where Chevron has drilled exploration wells in recent years.

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