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Chevron working Cook Inlet projects $200 million 3-year spend planned for oil re-development, gas exploration, says John Zager, company’s Alaska general manager Kristen Nelson Petroleum News
Chevron is looking for more hydrocarbons in the Cook Inlet basin, both oil and gas, John Zager, Chevron’s Alaska general manager, told the Resource Development Council’s annual conference in Anchorage Nov. 15.
He said the company expects to have a total capital budget of some $200 million in the inlet over the next three years, 2007-09; including partners’ share, the total is $300-$350 million.
The company also plans to drill its North Slope White Hills prospect in the winter of 2007-08.
“As compared to the last three years, we’ll at least double and possibly triple our investment here in Alaska,” he said.
Chevron is the fourth-largest producer in Alaska and the third-largest operator, with some 400 employees, about 275 in Kenai and about 125 in Anchorage.
The company has both oil and gas properties in the Cook Inlet basin, he said, and operates 10 of the inlet’s 16 platforms, with eight of the 10 currently producing from the McArthur River, Trading Bay and Granite Point fields.
It also has non-operated North Slope production and a large exploration position.
Cook Inlet also challenging Zager noted that while the North Slope is the area of the state recognized for challenging operations, “I just want to remind you that Cook Inlet is not a cakewalk either. We have to deal with large tides and ice pans and fairly aged infrastructure — most of those platforms have been out there pushing 40 years now.”
In its heyday in the 1970s, Cook Inlet produced more than 200,000 barrels per day. “We’re still producing about 200,000 barrels per day of crude,” Zager said, “the problem is, 90 percent of it is water,” increasing the cost of operations. Actual crude production has fallen to some 12,000 bpd.
Chevron has a multi-year program planned “to stabilize and increase production from the offshore platforms,” he said, with 40 to 50 projects identified, including “the gamut of opportunities you expect on a large older field.”
McArthur River is one of the state’s largest fields, he said, has produced more than 600 million barrels of oil, but has some 1.6 billion barrels of original oil in place, leaving “roughly a billion barrels in there that we can go after and hopefully increase the recovery factor enough to make some good projects and extend the life significantly,” including in-fill opportunities, step-out horizontal drilling, new fault blocks, waterflood optimization, Jurassic interval tests and deeper pool tests.
Zager said there are a lot of challenges, including those older platforms, many of which haven’t had drilling operations on them for quite a few years.
“The current plan is to begin this drilling program in the second half of 2007,” with a capital spend of about $200 million planned over the next three years, a total of $300-$350 million in capital when partners’ shares are included.
Cook Inlet gas a concern On the gas side, Chevron has a “significant” program coming up, Zager said, with “exploration plans at Granite Point.”
That field is a big structure, a four-way closure, and is in a good neighborhood for gas with the McArthur River, Beluga River and North Cook Inlet fields in the area.
Granite Point “has never really been drilled on top as a gas prospect,” he said, and while it’s in a good neighborhood for gas, Granite Point is risky for gas because it’s shallower than some of the other fields.
In addition, Chevron is “continuing to look at options on our south Kenai acreage” as well as in existing gas fields.
And the company is developing gas storage. “It’s hard for me to over emphasize gas storage,” he said. On cold days, gas is pulled out of storage and when temperatures go about 30 degrees, gas can probably be put back into storage.
Zager also addressed the contract Union Oil Company of California signed in 2000 with Enstar Natural Gas Co., the Southcentral Alaska local distribution company. It was the first gas supply contract to bring Lower 48 gas prices to Cook Inlet, he said, and was negotiated at a time when Enstar was having problems getting its gas contracts extended.
What Enstar got from Unocal was a commitment to spend $10 million in exploration money to find reserves.
Since then, “Unocal and now Chevron has spent $225 million on gas exploration and development … roughly $60 million of exploration, $150 million on development of facilities and pipelines and about $15 million on gas storage.”
Zager said that to date, some 150 billion cubic feet of gas has been discovered and committed to Enstar under the contract — and since the Enstar market is about 30 bcf a year, it got about a five-year supply through the contract. When the contract was signed, he said, “Enstar had a contractual shortage beginning in 2004,” and that’s been moved out to 2009.
North Slope, Juneau plans Elsewhere in the state, Chevron has a half-a-million acre exploration block called White Hills directly south of Kuparuk on the North Slope. “We’re working hard on getting that ready and plan to have a rig out there probably about 12-14 months” from now, Zager said, describing it as a “smaller, more portable, built-for-purpose type rig.”
He also said Chevron is “a strong supporter of this gas pipeline getting built … through Canada” as the “best means to monetize this gas.” Getting the gas into Midwest markets will avoid having Alaska gas compete “so directly with LNG landing on the coast.”
To the challenges of working in Alaska, “high cost, remote, long lead time, lack of infrastructure in many areas, regulatory and permitting uncertainty — I had to add fiscal uncertainty,” Zager said, because of the new petroleum profits tax, the PPT.
The risk with the PPT, he said, is the temptation “to come back and fix it — and fix it on an annual basis, so that we never know exactly what the next fix is going to be.”
The PPT increased the tax on production, but also gave significant credit for investments.
“I would advocate giving it some time to work and not run out and try to fix it,” Zager said.
He particularly urged industry to resist “the temptation to run down to Juneau with our own amendments” to the PPT, “because once that bottle is opened again, I fear that we’ll definitely lose control of the process.”
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