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Vol. 13, No. 35 Week of August 31, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

On the road again

After two-year pause Aurora Gas restarts its Cook Inlet drilling program

Alan Bailey

Petroleum News

It was October 2006 when Aurora Gas put its AWS No. 1 drilling rig into mothballs after several active years of drilling around Alaska’s Cook Inlet. Now, after nearly two years, the company has recommenced development drilling in its cluster of gas fields on the west side of the inlet, the company announced Aug. 22.

“We are committing approximately $7.2 million in this renewed effort to find and develop more gas in Cook Inlet,” said Aurora Gas President Scott Pfoff.

The 2006 drilling shutdown resulted from business uncertainty associated with litigation with Enstar Natural Gas Co., the main Southcentral Alaska gas utility, Aurora Gas said at the time of the shutdown. And Kaiser Francis Oil Co., 90 percent owner of Aurora Gas, decided it was no longer willing to invest money in the Cook Inlet.

Litigation resolved

But the Enstar litigation — a lawsuit revolving around Aurora Gas’s suspension of gas supplies to Enstar because of what Aurora Gas characterized as uneconomic gas prices — was settled in April 2008. Gas prices in the Cook Inlet region are on the rise. And Kaiser Francis has agreed that the time has come to invest further in Cook Inlet, to increase deliverability of gas from Aurora Gas’s fields and preserve the investment in those fields, Pfoff told Petroleum News Aug. 25.

“We’ve settled with Enstar. We feel like prices are better,” Pfoff said. “So projects that looked maybe on the fence a couple of years ago look much more attractive now that we can get market prices for our gas.”

Pfoff declined to say who will buy his company’s new gas but said that Aurora Gas is negotiating with several companies that are willing to enter into agreements. And, although there is uncertainty about future Cook Inlet prices, the movement towards higher pricing in the region should make the development drilling viable.

“We think we’re going to be able to successfully market all the gas that we drill up at prices that are going to give us a good return on our investment,” Pfoff said.

AWS No. 1 rig deployed

The AWS No. 1 rig has already been deployed to the west side of Cook Inlet and is in the process of re-entering the Aspen No. 1 well, Ed Jones, Aurora Gas’s executive vice president engineering-operations, told Petroleum News Aug. 26. The Aspen well was an unsuccessful exploration venture for Aurora Gas in 2005 and the company is now converting the well into a disposal well for water and drilling mud.

The various production wells that Aurora Gas operates are gradually delivering more water along with the gas, Jones explained. The company has been using tanks to evaporate water and lined pits to store water, but these techniques are barely keeping up with the water production.

“We’re able to manage right now by shutting some wells in and producing them only occasionally to keep water volumes under control,” Jones said. “But we’d like to be at such a place that we can produce any well at any time and have a way to get rid of the water.”

A vacuum truck will carry water to the Aspen well, which is located at a fairly central position relative to Aurora Gas’s fields.

Aurora Gas also plans to use the Aspen well to dispose of drilling mud.

“This will cut our drilling costs a fair amount,” Jones said.

At present the company disposes of mud using techniques such as setting the mud in cement and putting the solid cement blocks in a landfill, he said.

Development drilling

After completion of the drilling operations at Aspen, probably at the beginning of September, the AWS No. 1 rig will recomplete the Three Mile Creek No. 2 well in the Three Mile Creek field by perforating some new zones in the well.

“It’s never performed exceptionally well … so we are going to add some perforations … in hopes of increasing our volumes,” Jones said.

The rig will then drill two new development wells in the Lone Creek and Moquawkie fields in October and early November. Aurora Gas’s other two fields, Nicolai Creek and Kaloa, do not figure in the 2008 drilling program.

At Lone Creek, which Jones characterized as Aurora Gas’s best field to date, the company plans to drill the Lone Star No. 4 well to the north of the current wells.

The new Moquawkie well will replace the Moquawkie No. 1 well that was originally drilled in 1965. In developing the Moquawkie field Aurora Gas re-entered the No. 1 well but there are problems with the well casing, Jones said.

“We’re moving up dip a little bit and away from the well to hopefully have another good location,” Jones said.

Hooking the new wells into the existing facilities should take about six weeks, so that the new wells should go on line early in 2009.

Jones said that the new wells at Lone Creek and Moquawkie are expected to each produce at least 5 million cubic feet of gas. The work at Three Mile Creek should result in another 1 million cubic feet per day of production, he said. In fact, as much as 15 million cubic feet per day of additional gas deliverability is possible from the drilling program, he said.

No exploration planned

Aurora Gas does not have any current plans for new exploration drilling.

“It’s not at the top of our list,” Pfoff said. “I don’t see any pure exploration projects that we would do on our own in the near future.”

The company still has a joint venture agreement with Swift Energy Co. to explore Aurora Gas acreage, Pfoff said. Under that agreement, Swift has a 50 percent interest in several Aurora Gas exploration prospects and would fund 50 percent of the cost, were the companies to decide to drill an exploration well.

The joint venture drilled a dry oil wildcat well in the Endeavour prospect, near Anchor Point on the southern Kenai Peninsula, in April 2006. But because of Aurora Gas’s subsequent litigation problems and the shift of Swift’s attention into some acquisitions and divestitures elsewhere in the world, both companies became diverted from discussion of further Cook Inlet exploration drilling.

Aurora Gas also still has a farmout agreement dating back to 2005 with Trading Bay Oil and Gas relating to the Hanna prospect on the west side of Cook Inlet. An initial plan to drill at Hanna was postponed in 2006.

“That farmout agreement is still in place,” Pfoff said. “We would like very much to drill that prospect.”

However, Aurora Gas has been unsuccessful in finding an alternative to Kaiser Francis to fund exploration and does not currently have funding for any new exploration drilling. In fact, for the past year and a half, Aurora Gas has been trying to find someone to buy out Kaiser Francis’s ownership position in Aurora Gas.

“We’ve not been successful in finding anybody who is the right fit that was willing to pay the price that we felt the company was worth,” Pfoff said.

So, unless Kaiser Francis has a change of heart with respect to investing in Cook Inlet exploration, Aurora Gas will need a partner for exploration funding — the company is looking for a partner to participate in some form of farmout arrangement, Pfoff said.

But with the AWS No. 1 rig rotating a drill bit again in an Aurora Gas project, things have taken a definite turn for the better.

“We couldn’t be happier to be back drilling,” Pfoff said.

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