ConocoPhillips Alaska Inc. is selling its Cook Inlet properties.
The largest oil company in the state said it expects to open a data room in August to market its wholly owned North Cook Inlet unit and its stake of the Beluga River unit.
“While historically significant to the company’s investment in Alaska, the North Cook Inlet and Beluga River units are mature fields that are no longer considered core to Alaska operations. The focus will be on the company’s current North Slope operations, including the Alaska LNG project,” the company said in a statement on July 28.
The company said it intends to keep its liquefied natural gas terminal in Kenai.
The announcement is the second time in as many years that a major Alaska oil company has limited its focus in the state. In late 2014, Hilcorp Alaska LLC closed on the acquisition of four BP Exploration (Alaska) Inc. properties on the North Slope, which BP said would allow it to focus on the Prudhoe Bay unit and the Alaska LNG project.
By contrast, independent companies including Hilcorp and Miller Energy Resources Ltd. have expanded their focus to include properties on the North Slope as well as Cook Inlet.
Beluga River
The two units ConocoPhillips is selling are among the oldest in the Cook Inlet basin and yet both are believed to have enough gas remaining to support years of production.
Standard Oil Company of California - working with Shell and Richfield Oil Corp. - discovered the Beluga River gas pool in December 1962 with the Beluga River Unit No. 1 while looking for oil in deeper formations on the west side of the Cook Inlet basin.
Production began in 1968, after Chugach Electric Association Inc. built the nearby Beluga River Power Plant that provides electricity to Anchorage. With a major pipeline in 1984, Enstar Natural Gas Co. connected the field to heating markets in Anchorage.
Through its predecessor ARCO, ConocoPhillips became operator of the Beluga River field in 1986. Today, ConocoPhillips, Hilcorp and Municipal Light & Power each own a one-third interest (33.33 percent) in the field and its facilities. ConocoPhillips holds a two-thirds interest (67.67 percent) in the deep rights beneath the gas producing intervals.
Gas production increased somewhat steadily until around 2006. A June 2004 study from the U.S. Department of Energy expected production to continue at approximately 53.2 billion cubic feet per year through 2007 and decline steadily through at least 2025.
ConocoPhillips spent at least $140 million at the field between 2008 and 2012. The program included drilling six wells (including three drilled in return for state support for an extension of its license to export LNG) and upgrading compression in an attempt to improve deliverability. Between mid-2012 and mid-2013, ConocoPhillips drilled the BRU 244-23, recompleted the 212-24T to stimulate shallower Beluga sands, planned six well turnarounds and began evaluating several projects to improve well performance.
In its most recent plan of development for the unit, ConocoPhillips described Beluga River as being “fully delineated.” The Sterling reservoir had declined to 25 percent of its original pressure, down from 30 percent a year ago - deliverability has also declined.
Even so, the unit produced 25.1 billion cubic feet in 2014, up from 22.4 billion cubic feet in 2013, which suggests that recent maintenance activities at the field have been helpful.
North Cook Inlet
Pan American Petroleum Corp. discovered the North Cook Inlet Tertiary System Gas Pool in 1962 off the coast of the village of Tyonek with the Pan Am Cook Inlet State 17589 No. 1 exploratory well, which is known colloquially as Cook Inlet State No. 1.
The well famously blew out on Aug. 23, 1962, creating a flame large enough to see from Anchorage some 37 miles to the east. Pilots reportedly used the flare as a beacon.
Even though work on a relief well began a week later, it took Pan Am until October 1963, more than a year after the incident, to finally kill the well, in large part because winter ice flows in the Inlet prevented work from November 1962 until April 1963.
Pan Am drilled delineation wells through 1966 and mapped a pool covering some 8,000 acres. The company installed the Tyonek platform - the 12th in the Cook Inlet basin - in 1968. The platform was designed to withstand 80 mile per hour winds, 27-foot waves, temperature down to 40 below and 1,500-ton ice flows moving at 10 feet per second - the harshest conditions expected for the region. The company used “cluster spacing,” rather than standard 640-acre spacing, to drain the entire reservoir from a single platform.
When production began in 1969, other fields were already serving the local market in Anchorage. The Kenai LNG terminal was built to export these additional supplies to Japan. Early forecasts expected the pool to serve the Japanese market for 20 to 30 years.
Instead, the field continues to supply the market today, some 46 years later.
The longevity comes from accessing previously overlooked reserves. In 1993, when ARCO Alaska was operating the North Cook Inlet field, the Alaska Department of Natural Resources attributed 468 billion cubic feet in remaining reserves. The estimate grew to 410 bcf in 1994, 358 bcf in 1995, 1 trillion cubic feet in 1996 and 1.075 tcf in 1997 before falling to 917 bcf in 2000. The increased estimates prompted two nearby leaseholders to petition regulators to add their leases to the unit. The request set off a decade-long legal challenge that ended in 2006, when the Alaska Supreme Court ruled in favor of ConocoPhillips and kept the leases separate from the North Cook Inlet unit.
The June 2004 U.S. Department of Energy study predicted the field could produce another 598.4 bcf. A forecast envisioned production holding at 57.3 bcf per year through early 2009, when rates would begin declining at about 15 percent per year until they reached about 2 bcf per year at some point beyond 2025.
In reality, gas production from the North Cook Inlet field remained consistent - at some 100 million cubic feet per day - only through 2005, when rates began declining.
In 2008 and 2009, as part of the same deal to secure state support for the LNG export license, ConocoPhillips spent $75 million drilling three wells at the unit. The wells proved to be disappointing and investment has since been limited to maintenance work.
One avenue of potential investment is the oil prospects below the gas producing intervals. These were an important part of the legal challenge in 1996 and emerged again in 2013 when Buccaneer Energy Ltd. acquired deep drilling rights for oil from ConocoPhillips and made plans to explore. Bankruptcy proceedings ended those efforts.
