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Vol. 12, No. 39 Week of September 30, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Armstrong boosts odds on southern Kenai

Enstar has three possible sources for gas to extend gas grid into southern Kenai; North Fork’s new operator seen as first producer

Kay Cashman & Alan Bailey

Petroleum News

The odds of extending the natural gas pipeline system on Alaska’s Kenai Peninsula from its terminus at Happy Valley to the peninsula’s southernmost city got a whole lot better when Armstrong Oil and Gas returned to the state earlier in September. The independent oil and gas company, which is operating in Southcentral Alaska as Armstrong Cook Inlet LLC, took over operatorship of the 640-acre North Fork gas unit and acquired both the unit’s leases and nearly 18,000 acres of surrounding and nearby leases onshore the southern Kenai Peninsula. (See story in the Sept. 16 issue of Petroleum News.)

Curtis Thayer, director of corporate and external affairs for Enstar Natural Gas Co., told Petroleum News Sept. 24 that his company sees the Denver-based independent as the most likely candidate to be the first producer to offer gas for sale from the southern Kenai Peninsula. This would motivate Enstar to build 4- to 6-inch transmission lines connecting the existing Cook Inlet basin gas grid to the southern peninsula, he said.

First north to KKPL

The Anchorage-based utility would like to first connect untapped, stranded southern gas into the Kenai Kachemak pipeline, the most southerly pipeline on the peninsula, and then build a line south to the City of Homer, which has a small market that includes about 2,500 homes, 510 commercial and institutional structures, one industrial operation and 140 assorted other buildings.

“Armstrong probably has the best handle on making something happen. … I don’t have any inside information on their plans, but I can see them partnering with other producers in the area,” Thayer said.

There are three possible initial sources of southern gas, he said: “Chevron … in the Red well area. And then Pioneer (Natural Resources), which might have some gas to sell from their Cosmopolitan oil prospect at Anchor Point, if they decide to develop; and then Armstrong at North Fork.”

Enstar wants all three

Enstar is “looking at a way to combine all three sources into one pipeline,” said Thayer. But, “we have a quandary. … One of them has to be able to produce commercial quantities of gas. Chevron has indicated that if there was a pipeline they would be more interested in selling gas, developing the Red well area (Nikolaevsk unit north of North Fork). If you have a pipeline they will come … but we’d really like to see gas first.”

Of the three potential sources, “Armstrong seems the most aggressive about developing their gas play,” Thayer said. “One possible route would be to start with North Fork, connect it north to the Red Well and then KKPL. But if Pioneer goes first … after North Fork, then you’d across to Anchor Point and then up,” he said.

“We want to work with all three of them, which means we’d land up with sort of a triangle,” Thayer said.

Ready to permit

Enstar, he said, is looking at filing for permits with the Regulatory Commission of Alaska, “as soon as we can sort out which has the potential of going first.”

In paperwork filed with the State of Alaska’s Division of Oil and Gas in August, Armstrong Vice President Ed Kerr said Armstrong Cook Inlet was working on an “agreement in principle” with Enstar to build a 15-mile pipeline from North Fork’s existing gas well to the KKPL, provided Armstrong is able to “drill and test a reasonable amount of gas out of the delineation well,” Kerr told the state.

Thayer said it would take less than two years to permit and build a transmission line from North Fork to the KKPL.

Another gas prospect

In addition to North Fork and the surrounding acreage, Armstrong has at least one other gas prospect in the leases it acquired from Gas-Pro and its affiliates on the southern peninsula.

In January, Barry Foote, vice president of Gas-Pro, told Petroleum News that acreage his company acquired in the state’s May 2006 Cook Inlet areawide lease sale contained a gas prospect. The acreage in question, which Armstrong has since purchased, lies in a tract at the southeast corner of township 3 south, range 13 west, about 8 miles northeast of North Fork and almost due east of Happy Valley.

In 1970 Standard Oil of California drilled the North Fork 11-4 well about 2 miles southwest of the lease in what is now the Chevron-operated Nikolaevsk unit. Although the 11-4 well was plugged and abandoned as a dry hole, Standard noted good gas shows in the well.

It is likely that Gas-Pro identified the prospect in its new lease from old seismic data, and the dominant north-northeast trend of major geologic structures in the Cook Inlet basin would place the lease on trend with the structure that was drilled in the North Fork unit. However, although there is a significant northeast trending structure at North Fork, the geologic structure of the area is complex and poorly understood, Robert Swenson, deputy director of Alaska’s Division of Oil and Gas, told Petroleum News Sept. 24. The existing seismic data is not especially good and new seismic is difficult to acquire because of complex land ownership issues, Swenson said.

On the other hand, with the known existence of potential reservoir rocks in the Beluga and Tyonek formations in the subsurface, the area definitely has petroleum potential.

“The difficult thing is the (lack of seismic) data,” Swenson said. “… There is some potential, for sure.”

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