Marathon Oil has told Petroleum News it is continuing development activities at Kasilof, West Fork and Ninilchik on Alaska’s Kenai Peninsula. In the near term the company is focusing on gas rather than oil, said John Barnes, Marathon’s Alaska business unit leader.
“Marathon is working towards first production from the Kasilof discovery — we anticipate that first production to be on stream in December of 2006,” Barnes said. “The discovery will require a 4.5 mile pipeline from the field tying into the Kenai Kachemak pipeline.”
Marathon’s new plan of exploration for the Kasilof unit was due on Aug. 5 but the company has filed for an extension, according to Alaska’s Division of Oil and Gas.
Barnes also said that the company expects to bring on new production from a deeper interval in the West Fork field before the end of this summer. And production looks set to increase at the Ninilchik unit too.
“Currently at Ninilchik the good news is that we are producing just over 40 million (cubic feet) a day from eight wells,” Barnes said. “We are getting ready to test two additional wells out there.”
Marathon also has an exploration opportunity at East Swanson River but the company needs to better define the prospect there.
“That’s still on the table,” Barnes said. “The debate there frankly is drill a well versus obtain additional 3-D seismic data — we’re basically going through our budget process trying to figure out which way to go.”
And Marathon’s primary emphasis remains on the Kenai, Beaver Creek and Cannery Loop fields.
“Between these three fields, and including Ninilchik, Marathon expects to drill up to a dozen wells this year,” Barnes said.
Gas storage
In addition to continuing field exploration and development, Barnes sees gas storage as one of the company’s most exciting opportunities in the next six to 12 months. Marathon has been engaging the regulatory agencies, to start the regulatory process for gas storage in the Kenai gas field. Gas storage involves placing excess gas into field reservoirs during periods of low demand so that this gas can later be retrieved during periods of high demand.
“It’s become evident over the last several years that storage should play a key role in resolving the Cook Inlet natural gas needs,” Barnes said. “Several small projects are either active or proposed. Marathon is working towards a larger storage project in the Kenai gas field. This field has the capacity to store significant volumes of gas which will be needed to address larger seasonal swings.”
Stable deliverability
But stable gas deliverability has already helped the gas supply situation in the Cook Inlet region — Marathon estimates that overall deliverability for the Cook Inlet has stabilized at around 700 million cubic feet per day over the last two years. And gas reserves have also remained fairly stable.
“If you look at the state of Alaska DNR annual reports, Cook Inlet gas reserves increased from 2,032.8 bcf for the year end 2003 to 2,087.5 bcf for 2004,” Barnes said. “That also more than covered the production for the year … that’s the first time in quite a while that reserves have been replaced in the Cook Inlet.”
Barnes views this supply and reserves stability as evidence of hard work by the Cook Inlet producers and of the efforts by the Alaska Department of Natural Resources to stimulate gas exploration and production. However, he cautioned against thinking that there’s now a solution to the Cook Inlet gas supply problems.
“By no means does this good news show that the Cook Inlet supply and demand situation is resolved,” he said.
Companies need to drill more wells, he said. In fact Barnes thinks that current activity levels in the Cook Inlet still fall short of what’s required to minimize costs and encourage the use of new tools and technology.
“You don’t really see a very sustained industry there,” he said. “The service and support industry might be just short of critical mass.”
And Barnes still sees the permitting process as complex and difficult.
“I haven’t really seen anything that would tell me the needle’s moved yet,” he said. “A significant issue is that you have to deal with multiple agencies — state, federal, local … it’s hard to get coordination between agencies.”
Progress on pipelines
However, Barnes sees signs of significant progress towards improving gas pipeline access around the Cook Inlet and thinks that access to these pipelines will soon “no longer be a constraint for development in the inlet.”
In May the parties to the long-standing dispute regarding access to the Cook Inlet Gas Gathering System line reached an agreement in principle — the CIGGS line transports gas to the east side of the inlet from fields on the west side of the inlet.
“You want fair and equitable settlements across the board but I think we’re getting to the point where maybe that’s going to happen,” Barnes said. “The outshoot of that will be that there should be a significant amount of (pipeline) capacity available.”
Barnes thinks that solutions to pipeline issues revolve around matching market needs to fair pricing, balancing the needs of producers, shippers, consumers and pipeline operators.
And he also sees market forces moving gas prices towards an equilibrium that’s based on world market conditions. We know that there’s market demand and we know that the price signals are reflecting a supply/demand balance, he said.
“That ought to be an encouragement for producers — the rest of it is the hard work of going out and drilling wells,” Barnes said. “… there is no more (legacy) cheap gas in the Cook Inlet.”
And the good news is that there have been several operators drilling new wells around the inlet, he said.
“Marathon’s belief is that, with a good, fair, level playing field and market, the Cook Inlet is a good place to do business,” Barnes said.
