Vol. 26, No.18 Week of May 02, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

Division extends Redoubt, West McArthur operations suspensions

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Kristen Nelson

Petroleum News

Last year the Department of Natural Resources’ Division of Oil and Gas granted suspensions of operations and production to Cook Inlet Energy, a Glacier Oil and Gas company, for the Redoubt Shoal and West McArthur River units in Cook Inlet.

In requesting those one-year suspensions, May 1, 2020, through April 30, 2021, the company cited global low oil prices and lack of demand.

CIE put both fields into warm shutdown and in September notified the division that the warm shutdown had been changed to a cold and unmanned shutdown, due to longer-term global economic conditions.

This March the company requested extensions of operations and production for an additional year.

In April 23 decisions, division Director Tom Stokes said that in its request for extensions, the company cited economic instability and uncertainty and said it saw three possible paths forward for the units: investment with restart; divestment through asset sales; or abandonment of wells and facilities.

CIE told the division it has been aggressively marketing the properties since July 2020 and said there has been significant interest but said the process was tedious.

“Due to the uncertainty as to whether the asset will receive the investment necessary for restart, CIE has been working on both a plan to restart, and a plan to abandon RU,” Stokes said in the Redoubt decision.

He said the same thing in the West McArthur River unit decision.

The company said it has abandonment agreements in place with Salamatof Native Association, the surface owner at both units, and Cook Inlet Region Inc., which owns the subsurface where infrastructure for both units is located.

The company also requested extensions of the plan of development periods for both units.

Division decisions

In both cases, Stokes said that when the division approved the initial suspensions, it found that because of extreme low prices, hydrocarbons produced from the units would be “at marginal or low-generating terms, and a significantly reduced royalty for both the State and private mineral owners.” Because of those circumstances, the suspensions were found to be in the public interest.

The one-year extension request, however, would not be in the best interests of either the state or the public, Stokes said, since market conditions have returned to levels seen when the units last produced and the longer the units remain shut-in, the less likely it becomes that they will ever return to production.

In its decisions the division cited production and prospects for the units:

*Redoubt Shoal was formed in April 1997 and prior to the suspension last year, had cumulatively produced some 5.3 million barrels of oil and 2.6 billion cubic feet of gas.

*The West McArthur River unit was formed in 1990 and prior to the suspension cumulative production was 15.65 million barrels of oil and 3.975 billion cubic feet of natural gas.

Stokes said that in technical presentations to the division CIE said there were still obtainable reserves at both units.

He said outright denials of the extension requests “would likely lead to termination” of the units. “Terminating a unit with remaining reserves would not promote the prevention of economic and physical waste,” Stokes said. “However, it is impossible for CIE to restart production immediately due to operational challenges such as integrity inspection and equipment and personnel mobilization.”

In both cases, the division has decided to extend the suspensions of operation for six months and is requiring updates by July 31 and submission of proposed new plans of development within 30 days after resumption of production.

The division has provisionally approved extension of the suspensions from May 1 through Oct. 21 and has given CIE until April 30 to accept the proposed modifications in writing.


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