The Houston-based independent Escopeta Oil & Gas Co. spent more than a decade acquiring a lease position in upper Cook Inlet, securing a jack-up rig and bringing the rig to Alaska to conduct an exploration program at what is now the Kitchen Lights unit.
The Kitchen Lights unit was created through a 2009 settlement between the state and various independent operators in the region. The 83,394-acre unit combined 40,733 acres from the Escopeta-operated Kitchen unit, 15,930 acres from the Renaissance Alaska LLC-operated Northern Lights prospect and 26,721 acres from the Corsair prospect that had previously been owned by the bankrupt Pacific Energy Resources Ltd. The idea behind combining the three prospects was to prevent a legal battle over missed work commitments while simultaneously prompting exploration and development activities.
A corporate shuffle in 2011 divided Kitchen Lights. Through its subsidiary Furie Operating Alaska LLC, the German company Deutsche Oil & Gas became the new unit operator. Cornucopia Oil and Gas Co. became the primary working interest owner. Later, Energy Capital Partners Mezzanine Opportunities Fund became a primary financier.
The subsequent exploration campaign was successful but left the companies with some bruises, particularly a $15 million fine from the federal government for violating the Jones Act, which regulates marine traffic. The company continues to challenge the fine.
The Kitchen Lights unit
Kitchen Lights is the largest unit in the Cook Inlet basin. The current plan of exploration divides the unit into four exploration blocks: North, Corsair, Central and Southwest. The development project underway only targets the Corsair block. The remaining three exploration blocks are slated for future work.
To date, Furie has drilled five wells and a sidetrack throughout the Kitchen Lights unit, although the current development program is based only around a portion of that drilling.
Using the Spartan 151 jack-up rig, Furie drilled the Kitchen Lights Unit No. 1 well in the Corsair block in 2011 and 2012. Work occurred over two years because the rig arrived in Cook Inlet during the summer, too late to complete activities before the end of the drilling season. Also, Furie suspended operations earlier than it had intended because the state had asked the company to slow the pace of its work to ensure operational safety.
By the time Furie stored the rig for the season, the company had drilled KLU No. 1 to a depth of some 8,805 feet, about halfway to the target depth of 16,500 feet. The following year, the company finished drilling, reaching a total depth of 15,298 feet before starting work on the Kitchen Lights Unit No. 2 well, also in the Corsair block. The company reached a total depth of some 9,000 feet and drilled the Kitchen Lights Unit No. 2A sidetrack to test several gas-bearing zones in the Beluga. In 2013, Furie drilled the Kitchen Lights Unit No. 3 well, also in the Corsair block, to a total depth of 10,391 feet.
Those three wells formed the basis for the current development program.
Toward the end of the drilling season in 2013, after completing KLU No. 3, Furie began the Kitchen Lights Unit No. 4 well in the northern block. In 2014, Furie completed KLU No. 4 and drilled the 11,800-foot Kitchen Lights Unit No. 5 well in the central block.
Resource estimates
Even though KLU No. 1 was only halfway to total depth when the first drilling season ended, Furie announced a major discovery: approximately 46.7 billion cubic feet of natural gas in place, which, extrapolated over a larger area, suggested some 3.5 trillion cubic feet of gas present at the unit. If correct, those figures would rank among the largest natural gas discoveries in the history of the Cook Inlet basin. However, some state officials and industry watchers expressed skepticism at the time, saying that the announcement pushed the upper limits of what geologists expected the basin to contain.
In the years since, Furie has elaborated upon the initial figures. Speaking to lawmakers in March 2012, then President Damon Kade estimated probable gas reserves of 750 billion cubic feet and peak production of 30 million cubic feet per day from Kitchen Lights. The lower figure was based on a smaller geographic drainage area, Kade later told Petroleum News.
In early 2013, parent company Deutsche Oil & Gas released an assessment of “roughly one ninth of its production area in Kitchen Lights unit.” It estimated a mid-case scenario of 72.1 million barrels of oil and 543.8 billion cubic feet of gas “classified as ‘probable’ and ‘prospective’ exploitable reserves.” Under generally accepted definitions, “probable” indicates 50 percent likelihood and “prospective” indicates 10 percent likelihood.
As might be assumed given their proximity, KLU No. 2 and KLU No. 3 were intended to delineate the initial KLU No. 1 discovery, as well as to find additional resources.
In a formal statement of discovery filed with the Alaska Department of Natural Resources in July 2013, Furie said that the KLU No. 3 well had encountered multiple productive gas pools in the Sterling and Beluga formations at depths ranging from 3,618 feet to 6,228 feet. The company also said that it had conducted modular dynamic testing of 28 gas pools and had flow tested six pools. In the most recent plan of development for the unit, from November 2014, Furie said that the KLU No. 3 well had produced 15.83 million cubic feet during a four-point test, which confirmed a commercial discovery. The gas samples taken during the test were 99 percent methane, according to the company.
In a Sept. 16 decision, Division of Oil and Gas Director Corri Feige certified KLU No. 3 as the official discovery well for four previously undiscovered natural gas pools in the Sterling and Beluga formations. Under the ruling, Furie and its working interest owners will pay a 5 percent royalty rate for all natural gas produced at lease ADL 389197 from those four previously undiscovered pools, rather than the traditional 12.5 percent royalty rate. The decision begins retroactive to June 30, 2013, and runs through June 29, 2023.
Julius R platform
Furie sanctioned its initial development at Kitchen Lights based on the results of KLU No. 3, and the company is using the well as the basis for its current development.
The first phase will install KLU the Julius R platform and a subsea pipeline connecting to new onshore gas production facilities. In July 2014, the private equity firm Energy Capital Partners Mezzanine Opportunities Fund committed $160 million to the development.
The Julius R platform is a monopod platform with three primary decks - a production deck 62 feet above sea level, a main deck 82 feet above sea level and a helideck 100 feet above sea level. Once operations begin, the company will cantilever its jack-up rig over the fixed platform and drill wells through an 18-foot-diameter caisson, into the seafloor.
While Furie had initially intended to install the platform by the end of 2014, a delay in receiving the components and concerns about encountering bad weather as the open water season neared an end convinced the company to delay installation until this year.
By August 2015, Furie had finished installing the platform, laying the pipeline and constructing the onshore production facilities. The company had also secured an important administrative distinction when the Regulatory Commission of Alaska approved a connection of between the facility and the nearby Kenai Beluga Pipeline.
As The Producers was going to press, Furie was completing final activities, including connecting the subsea pipeline to the platform and pressure testing the pipeline, installing a workover rig on the platform and tying the KLU No. 3 well to the pipeline. The company expected production to begin in November 2015. In September 2015, Furie announced another supply contract, this one with Homer Electric Association Inc. The contract begins April 2016 and runs through the end of 2018, with options to extend the term through the end of 2020. The agreement calls for Homer Electric to buy between 4 billion and 6.2 billion cubic feet of natural gas annually starting March 31.
What comes next?
With the initial development nearing completion, Furie is giving thought to the future.
As described in public documents, the second phase of development involves “continued operations and maintenance of these facilities” through “initial and intermittent production well drilling” with temporary rigs. Previously, the company had suggested it might develop the current reservoir with “up to six wells,” including KLU No. 3. The company has also said it might install additional platforms, depending on its needs.
In a March 2015 plan of exploration, Furie told the state it would complete KLU No. 3 as a development well and would drill two more development wells into the Corsair block by the end of the current drilling season but would postpone completion activities on those wells until 2016. As of late August 2015, the company had yet to receive Alaska Oil and Gas Conservation Commission permits for new wells at Kitchen Lights.
Furie also told the state that it would continue its exploration program. If the company aims to fulfill its initial commitments, the Kitchen Lights Unit No. 6 well would be in the southwest block, which is the only exploration block at the unit yet to be explored. The company also said it might sanction a second development instead of exploring. While the company has yet to announce the results from KLU No. 4, KLU No. 5 was a dry hole.
