Enstar Natural Gas Co. has filed with the Regulatory Commission of Alaska the utility’s new gas supply agreement with Furie Operating Alaska. Enstar will need commission approval to incorporate the gas supply agreement into the Enstar tariff. The Furie gas will come from the company’s new Kitchen Lights gas field, offshore in Cook Inlet.
The new contract, which runs from April 1, 2018, to March 31, 2021, will meet 20 percent of Enstar’s gas needs during that period. The contract includes an option for a further two-year extension to 2023, if Enstar chooses to invoke this option by the date on which the new Furie supplies start. Enstar has recently announced a new gas supply agreement with Hilcorp that will meet 70 percent of the utility’s expected needs between April 1, 2018, and March 31, 2023. The utility already has sufficient gas under contract to meet its needs through to March 31, 2018.
Accelerated development
Bruce Webb, Furie senior vice president, has told Petroleum News that his company is accelerating its Kitchen Lights development plans to fulfill the Enstar contract and possibly other natural gas opportunities. The company’s latest plan for the Kitchen Lights unit indicates that the company anticipates drilling two gas field development wells in 2016 and another two development wells during for the period April 2017 to October 2018. The Kitchen Lights field currently produces from a single well, the KLU No. 3 well.
Furie has already secured a gas supply contract with Homer Electric Association, starting in April.
The Enstar contract guarantees the supply of about 6.2 billion cubic feet of gas per year, but with a daily call option for additional gas during the winter. That additional gas, which Enstar can request and Furie must supply, can amount to up to 1 billion cubic feet during each winter season. And to allow flexibility in response to variations in gas demand, Enstar can notify Furie by Oct. 1 in any contract year of a minor adjustment to the annual gas volume for the following year. The contract also allows for negotiations over requested supply variations that exceed 5 percent of the contract volumes. In addition, there are provisions to accommodate the possibility of Enstar customers opting out or returning to the use of Enstar gas supply services.
The contract specifies gas delivery rates of 10 million cubic feet per day between May and September, and 22 million cubic feet per day between October and April. The daily call option allows for the potential delivery of up to 20 million cubic feet per day of gas.
Emergency gas may become available during periods of especially high demand if Enstar can come to an agreement with electric utilities on their gas usage in this type of situation.
Gas pricing
Gas pricing for the base gas supply ranges from $6.70 per thousand cubic feet per day in 2018 to $6.97 per thousand cubic feet starting in April 2020. Daily call option gas ranges in price from $7.73 in 2018 to $8.04 in 2020. And emergency gas supplies may be available at maximum prices ranging from $9.28 to $9.66.
If Enstar exercises the option to extend the contract beyond March 31, 2021, the base rate for gas will be $7.71, starting in April 2021, and $7.25, starting in April 2022. The corresponding daily call option rates will be $8.20 and $8.36.
The contract contains milestones by which Furie has to demonstrate its ability to deliver gas as specified in the contract. Gas prices will be reduced by specified amounts if Furie fails to demonstrate by Oct. 31, 2017, its ability to deliver full volumes of daily call option gas. And, given that Furie is a new producer in Enstar’s portfolio, Enstar says that the contract includes a termination clause tied to the performance milestones.
