|
THE EXPLORERS 2004: Forest Oil’s future in Alaska unknown
Kay Cashman Petroleum News
Forest Oil Corp.’s new game plan, announced in September 2003 after several quarters of disappointing financial results, did not bode well for Alaska.
Newly appointed CEO Craig Clark’s four-pronged strategy to improve Forest’s financial position included, among other things, less emphasis on frontier drilling and more focus on acquiring producing properties. The Denver-based independent’s portfolio in Alaska included a number of prospective “ready to drill” frontier prospects and producing properties for sale in Alaska were few and far between.
One other element of Clark’s strategy was cost-cutting in all the company’s business units, which had serious implications for Alaska because of Forest’s less-than-profitable experience at offshore Redoubt Shoal field in Southcentral Alaska’s Cook Inlet basin.
Disappointing results Months before Clark revealed his new game plan, the dream that was Redoubt Shoal — solid new oil production from Alaska’s mature Cook Inlet basin — had started to fade. Forest admitted its disappointment publicly in August 2003 when it announced unsatisfactory results from two Redoubt wells and said it was reevaluating the reservoir.
At about the same time, the hard-charging Clark replaced chairman and CEO Robert Boswell, who resigned after 17 years with Forest.
Forest’s top executive in Alaska, Gary Carlson, also left the company in 2003.
Carlson was replaced with Leonard Gurule, a former manager of ARCO Alaska’s Prudhoe Bay operations and construction activities.
Final wake-up call The final wake-up call for Alaska came Jan. 27, 2004, when Clark told analysts Forest had cut proved recoverable reserves at Redoubt from 49 million barrels (the May 2002 number of 100 million barrels was not mentioned), to 8 million barrels.
Clark said in a conference call that Forest had completed an integrated field study of the Redoubt Shoal field and was “very disappointed” in the reduction in recoverable reserves. He said the company had finished its detailed technical review of the field and also had results back from an independent third-party review. The technical review combined geological and geophysical data gathered in 2003 with previous data and the reservoir was remapped using new seismic and new well data.
Clark said the new data, including production to date of more than a million barrels and the drilling of the No. 7 well close to the earliest producers, the No. 1 and No. 2 wells, “was helpful in providing additional oil-in-place calculations to compare to the 2002 data.”
Clark also said Forest had replaced the traditional drilling rig it was using at Redoubt with a less expensive hydraulic workover rig from the Gulf Coast. “We have a rig that’s basically allowing for remedial work and testing.”
The smaller rig, he said, represented a 15 to 20 percent cost savings. “By eliminating the rig it gave us room and it also stops the meter running with a $100,000 a day spread.”
The new reserves estimate reflected both lower-than-expected production rates and new data evaluations showing “significantly lower oil in place … lower overall recovery efficiencies and economic cutoffs,” the company said in a written statement. (Boswell had previously indicated oil in place of 550 million barrels, but Clark did not offer a new number.)
Lower productivity, which had become apparent earlier in 2003, combined with lower reserves and high drilling costs made it “apparent that there was some oil that could not be recovered on the fringe or lower productive areas due to economic cost,” he said.
“All of those factors contributed to lowering the total recovery factor to 18 percent.” Cook Inlet fields have been averaging in the range of 25 percent to 42 percent oil recovery rates. Forest relatively quiet under Gurule Gurule, Forest’s new senior vice president of Alaska operations, arrived in the state with a positive message, despite the challenges he faced at Redoubt.
“I can tell you,” he told Petroleum News Oct. 27, 2003, “that Forest is bullish on Alaska.” Gurule, whose background includes 19 years with ARCO, (including postings at Prudhoe Bay and Kuparuk) was tasked with going through the company’s Alaska assets, determining what looks good for Forest to drill, and what it should hold off on, where it should drill itself and where it should take partners.
Between October 2003 and October 2004, the company reduced its ownership in the ConocoPhillips Cosmopolitan prospect (see Devon story in this issue), increased partnership spending in Cook Inlet units operated by Aurora and Unocal, plans to drill a West Forelands gas well in the near future, and dropped eight Cook Inlet area leases — three on the southeastern edge of Redoubt and five onshore, southwest of the West McArthur River unit, which Forest operates.
And what does Gurule expect in the future? In October 2003 he said, “I see us growing in Alaska.”
But Gurule was not ready to talk about Forest’s future in Alaska in late October 2004, when The Explorers went to press.
| 