Furie Operating Alaska LLC is blaming its lack of development drilling at the Kitchen Lights unit this past summer on state fiscal policy - particularly oil and gas tax credits.
In a plan of development submitted to state officials in early October, the local independent wrote that “the lack of any meaningful appropriation to the oil and gas tax credit fund for the purchase of Alaska oil and gas production tax credit certificates” prevented the company from drilling development or exploration wells at the unit.
The Randolph Yost jack-up drilling rig was fully staffed for drilling operations at Kitchen Lights as early as April 2017, according to Furie. But the company delayed the purchase of certain long-lead items, pending the results of ongoing state budget talks this summer.
The ultimate state decision to again underfund outstanding certificates meant, “Furie did not receive the funds it had relied on for its 2017 operations,” the company wrote.
In addition to the financial uncertainty, Furie blamed its inability to drill on the protracted budgetary standoff over the summer, which threatened to shut down government services.
Lawmakers finally passed a capital budget on July 27, two weeks after a tugboat required for operating the Randolph Yost rig went into dry dock and left for Singapore on July 13.
Furie needed the anchor-handling tugboat to set the jack-up rig in place. According to the company, no suitable replacement vessel could be found in Alaska. The Randolph Yost rig remained staffed until mid-August, when Furie learned that the boat would not return until October, just before the end of the open-water drilling season in the Cook Inlet.
An alternate plan to bring a replacement vessel from the Gulf of Mexico proved to be too expensive and time-consuming in the time remaining, leading Furie to cancel its program.
“In sum, the lack of a timely resolution regarding funding for DOR to purchase tax credits delayed operations until the anchor handling tug boat was no longer available, and it was not returning to Alaska until the very end of the drilling season,” Furie wrote, referring to the Alaska Department of Revenue, which runs the tax credit program.
The budget cuts this year followed two previous gubernatorial vetoes that cut funding for buying back tax credits. According to the company, those vetoes “created significant uncertainty for investors, making it harder and more expensive for Furie and other small, independent producers to secure crucial funds needed for drilling and completion programs” and “essentially gutted Furie’s sourced budgeted funds for 2016.”
“Furie has invested hundreds of millions of dollars in exploring and developing the KLU (Kitchen Lights unit) and has a very substantial amount of tax credit certificates in the queue awaiting purchase by the state,” the company wrote in its plan. “These certificates are a key component to funding further exploration and development activities in the KLU and were relied on by Furie when putting together its work program and budget.”
Future plans
The Kitchen Lights unit is currently producing from two wells: the initial KLU No. 3 discovery well drilled in late 2015 and the KLU No. A-2A well drilled in 2016.
Furie began drilling the KLU No. A-1 well last year and had intended to complete the well this summer. The well was required to meet the terms of a gas supply contract with Enstar Natural Gas Co. The utility recently extended the deadline to July 31, 2018 (see story in Oct. 1 issue of Petroleum News).
As part of its work this year, Furie removed a composite bridge-plug setting tool from KLU No. 3, allowing the well to produce from both the Beluga and Sterling formations.
For the coming year, Furie is proposing a two-well program.
The company first intends to complete the KLU No. A-1 well “if advisable based on logs, data and market conditions” and then plans to drill a new development well at the unit.
The new development well would also be in the Corsair block - one of four exploration blocks at the unit and the site of all current development. The new well would target a Sterling interval from 6,964 feet to 6,998 feet measured depth in the KLU No. 3 well, “unless interpretations from the shallower data in a well indicate that producible hydrocarbons are unlikely to be found by drilling to that equivalent horizon depth.”
Alternately, the company said it might postpone the new development well in favor of drilling a new exploration well or re-entering and deepening the existing KLU No. 4 well.
In its plan, Furie also referenced its earlier exploration plan, which detailed proposed exploration well locations throughout the unit on a timeline between now and 2021.
