Heckuva bunch of work
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Under ownership of HEX, Furie worked on all Julius R platform wells & more
On Oct. 15, Furie Operating Alaska LLC, under the ownership of HEX LLC, filed its eighth plan of development for the northern Cook Inlet Kitchen Lights unit with Alaska’s Division of Oil and Gas. The eighth POD period runs from Jan. 3, 2022, through Dec. 31, 2022.
Although Furie and HEX CEO John Hendrix told Petroleum News Oct. 19 that Furie will file an addendum to the eighth POD listing more well work that it hopes to do in the unit, Furie did commit to some things in the Oct. 15 filing, as well as describe an appreciable amount of work accomplished so far this year.
Furie said it plans to continue efforts ongoing from the seventh POD, which ends Jan. 2, along with evaluating development options for the state leases it won in the June Cook Inlet areawide lease sale. Specifically, Furie will:
* Continue development of proven gas reserves in the KLU. The 2021 well intervention campaign is still in progress; results or new information are coming in almost daily. The specific activities planned for individual wells in 2022 will be determined after the 2021 intervention campaign is complete and sustained production results available.
* Continue efforts to optimize production, enhance safety and minimize environmental footprint of KLU related infrastructure.
* Continue progress on establishing a participating area along with a possible unit expansion.
* Evaluate drilling of additional wells on existing lease acreage and new acreage acquired in the state’s June 2021 Cook Inlet areawide lease sale.
“At this time we are trying to bring all wells back online,” Hendrix told PN, noting KLU A-1 is giving them some difficulties.
Work for seventh POD periodIn its review of work promised for the seventh POD period of July 1, 2020, through Jan. 2, 2022, Furie said that under the new ownership of HEX it would do the following, noting in the eighth POD if it had met commitments:
* Met - Continue development of proven gas reserves in the KLU.
* Met - Continue and increase production of natural gas on the Julius R. platform.
* Met - Continue exploration of the KLU, including the new analysis of seismic data and offset wells to identify specific targets for exploration outside of the Corsair Block.
* In progress - Update joint operating agreement to reflect the realities of operating in Cook Inlet.
A load of workIn support of the seventh POD Furie said all four wells on the Julius R. platform have had one or more downhole interventions completed, or intervention work is in progress to continue development and increase production from the KLU, specifically:
* Well KLU A-1 had dozens of feet of fill bailed from the tubing to allow access for reperforations and additional perforations in the Beluga interval. The perforations were successfully executed. The well was incapable of sustained flow during the initial post intervention startup attempt. Further diagnostics were performed and another attempt to initiate flow is in progress. (The old Furie, prior to HEX’s ownership, had never produced this well from the Beluga formation.)
* Well KLU A-2 had additional perforations added in the Beluga interval.
* Well KLU 3 had two sliding sleeves shifted to the open position to allow additional Beluga formation production.
* Well KLU A-4 had never produced from the Beluga formation due to a plug in the tailpipe with several feet of solids above it, along with multiple wireline tool strings and wireline in the well. The tubing tailpipe was perforated above the fish to allow production from the Beluga.
* Well KLU A-4 also had a wireline tool string fish retrieved from the well, several dozen feet of slickline recovered, and several dozen feet of solids bailed out of the tubing tailpipe. Bailing and fishing efforts are ongoing. The objective is to allow access to the liner below the tailpipe for additional Beluga perforations.
* A produced water handling system was installed primarily for the Sterling formation, and appropriate permits obtained to allow production of gas zones with higher water content. This may result in increased gas recovery once the formation is brought on production.
* A detailed assessment of the KLU area and adjacent acreage was completed and led to Furie being the high bidder on adjoining leases at the June 2021 lease sale.
* An amendment to the joint operating agreement was submitted to the working interest owners. No agreement has been reached regarding this amendment.
Division’s modificationsThe division approved the seventh POD with modifications on Nov. 13, 2020. The modifications imposed conditions on Furie that included completing its existing participating area applications or submitting a new PA application on or before Dec. 31, 2020. Furie said in its eighth POD that it continues to evaluate available data to submit a draft PA application for review.
In an August 2021 meeting with the division, agency staff suggested that Furie consider unit expansion prior to finalizing the draft PA application.
Another modification called for Furie providing a technical presentation to the division by July 1, 2021, detailing with specificity the progress made on the subsurface description of the KLU along with any other activities undertaken by Furie related to further development of the KLU and exploration activities
Furie said its personnel spent much of the first half of 2021 analyzing all available data in preparation for the June Cook Inlet lease sale. Due to confidentiality concerns prior to the sale, the company told the division that it “preferred not to provide specificity regarding progress on the subsurface description.”
During its August 2021 meeting with the division Furie offered to provide a technical presentation at its Anchorage office for division personnel. This presentation has not yet been scheduled, but there are ongoing conversations between the agency and Furie.
KLU development opportunities“If a number of obstacles are reduced Furie believes there is potential development opportunity within the Kitchen Lights unit and adjacent acreage to provide clean, reliable energy for Alaskan residents for many years. Furie’s participation in the June 2021 Cook Inlet lease sale provides clear evidence of this premise,” Hendrix told the division and PN.
The company’s high bids at that lease sale totaled $325,605.23.
“Unfortunately, enthusiasm for development must be tempered with the reality of the unfavorable economic climate in the state of Alaska,” Hendrix told PN and expressed in his remarks to the division
“The delay in paying earned tax credits and excessive tax valuation of the KLU infrastructure are a couple of examples that conspire to limit both internal and external capital availability for development,” he said.
The previous owners of the Kitchen Lights assets are still owed $103 million by the state of Alaska for tax credits that will flow through a HEX company to them (and if the state doesn’t pay the $103 million by 2025, HEX is on the hook to pay an additional $15 million to the previous owners).
Furthermore, the Alaska Department of Revenue imposed a property tax on the fixed assets and related infrastructure of Kitchen Lights, assessing its value at $81.2 million, even though its value in bankruptcy court was the $5 million paid by HEX.
That DOR assessment earned Furie a $1.6 million tax bill, which Hendrix told PN was “unfair and excessive.” It was money that should be allocated for well work, he said.
The Covid 19 pandemic has also had “significant impacts on KLU activity over the last year and may continue into 2022,” Hendrix told the division in his concluding remarks.
“I took a gamble on buying Kitchen Lights; I know that. But I figured I should be able to trust my state government to treat me fairly,” he told PN. “Obviously, that’s not what’s happening at this time. The state agencies need to quit operating in silos and start cooperating and working with each other.”
HEX is the only Alaska-owned producer in the state.