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State approves two Cook Inlet units Unocal operator at Deep Creek, South Ninilchik on southern Kenai Peninsula; 2002 drilling planned in both areas, gas prospects linked to proposed pipeline By Kristen Nelson PNA Editor-in-Chief
Unocal Alaska has had two new units approved on the Kenai Peninsula — both targeted at natural gas. The Alaska Department of Natural Resources, Division of Oil and Gas, approved the Deep Creek and South Ninilchik units late last year. Both units will be jointly administered by the state and Cook Inlet Region Inc. All of the Deep Creek acreage and the majority of South Ninilchik acreage are in state or CIRI oil and gas leases.
Unocal is the only working interest owner in the units, each of which contains one state lease that would have expired Dec. 31, 2001, if the unit had not been formed. Unocal’s applications, submitted in November, were approved Dec. 30.
Each two-year plan of unit operations includes a well and new seismic acquisition.
One issue came up in the unit negotiations that was not resolved.
The state asked for — and Unocal refused — modification to the state’s model unit agreement adding compression to the partial list of excluded expenses which cannot be charged against the state’s royalty share of gas. The state said its royalty share “must be paid free and clear of all lease, unit and participating area expenses” and said the model unit agreement and its leases “describe the type of expenses contemplated and provide a partial list of excluded expenses.” The state also said that royalty interest gas must be delivered “in good and merchantable condition and must be of pipeline quality.”
Unocal said the requested amendments “would modify the state lease terms which the working interest owners are not prepared to do.”
The state said that although Unocal did not agree to modifying the model agreement to include compression in the list of excluded expenses, the state “believes it has a sound basis for its interpretation” and said this is not a critical issue before production begins. Deep Creek five miles inland The Deep Creek unit, some 22,200 acres, is on uplands that parallel the Cook Inlet coastline approximately five miles inland from Ninilchik and Happy Valley. Some 40 percent of the Deep Creek acreage is in five state oil and gas leases and some 60 percent in five CIRI oil and gas leases.
Unocal plans two wells, NNA 1 and 2. The surface location of NNA 2 was moved out of a wetland area because of state and federal concerns. The state said that no part of the project is now on wetlands. Unocal will use existing roads to reach project locations.
The state said Cook Inlet areawide geology maps from the 1960s and 1970s identify the anticlinal trend that is the basis of the Deep Creek unit. “The Deep Creek anticline is the main feature in the proposed unit area,” the Division of Oil and Gas said in its findings and decision, “and a structural saddle separates it from the Happy Valley anticline. Additional structural highs are present in the proposed unit area further to the southwest, on the sand trend as the Deep Creek and Happy Valley anticlines, but separated by a major saddle and faults perpendicular to the trend area.” Previous exploration The state said the Deep Creek structure was recognized and mapped with subsurface, gravity and magnetic tools in the 1950s. Standard Oil of California drilled the Socal Deep Creek 1 in 1958 looking for oil in the Hemlock formation, with Tyonek formation gas a secondary target and tested the Hemlock. Two drill stem tests were successful, one recovering 30 feet of water cut mud, the other recovering 1,624 feet of gassy mud and water. The well was plugged and abandoned as a dry hole.
The Happy Valley unit was formed in 1963 and included most of the acreage in the Deep Creek unit. Superior Oil Co. drilled the Happy Valley unit 31-22 well approximately one mile south of the Socal Deep Creek well and plugged and abandoned it as a dry hole.
Tyonek gas is present in the Falls Creek and Ninilchik units north of the Deep Creek unit. The Cosmopolitan unit, southeast of Deep Creek, has a proven oil accumulation. The state said none of the gas and oil accumulations have proven to be commercial, and, based on history and information presented by Unocal, “the area is prospective for commercial natural gas development, but that potential is unproven.” Exploration plan Unocal’s initial plan of development for the Deep Creek unit includes the drilling of an exploratory well and acquisition of seismic data.
The NNA 1 will be drilled in the northeast corner of the unit in the first year of the plan to a depth of 11,200 feet measured depth and true vertical depth at 510 feet from the west line and 272 feet from the south line of section 11, township 2 south, range 13 west, Seward Meridian, on CIRI lease C-061587.
Unocal’s project includes a second well, NNA 2, on one of the other structures in 2004-2005, after expiration of the initial plan of exploration.
Unocal has also committed to acquiring new proprietary 2-D and 3-D seismic data during the second year.
Because little information on state acreage would have been gathered in the initial plan, the state said it is also requiring that the seismic information Unocal acquires in the second years of the plan provide information on state acreage.
The state said it will require additional exploration commitments on the state’s acreage in the southwestern portion of the unit for that acreage to remain in the unit beyond the initial two-year plan of exploration. South Ninilchik The second unit, South Ninilchik, is some 6,998 acres northeast of the town of Ninilchik. About 2,983 acres (43 percent of the unit) is in four state oil and gas leases; 2,256 acres (32 percent) is in two CIRI leases; the remaining 1,760 acres (25 percent) is in 77 third-party tracts owned by private landowners, including two leases issued by the University of Alaska and unleased land within a state park.
The state said Unocal has leased 96 percent of the unit area; the remaining 4 percent is 276 acres of unleased third-party land.
The state said the South Ninilchik unit encompasses the South Ninilchik fault block of the greater Ninilchik anticline which extends for 16 miles along the coastline from Clam Gulch to just north of Ninilchik. There are a number of crosscutting faults along the crest of the structure, forming the South Ninilchik fault block.
The South Ninilchik fault blocks were explored in the late 1950s and the subsurface was mapped with seismic, gravity and magnetic tools. In 1960, Standard Oil of California drilled the Socal Falls Creek 1 well. In 1961, the company completed three Tyonek formation sandstone zones and tested one Beluga interval for gas. This discovery well for the Falls Creek gas field has remained shut-in since completion.
Units were formed in the area in the 1960s and again in the 1970s, and seven additional wells were drilled. The state said only one of these, Texaco’s Ninilchik Unit 1, flow-tested gas from one Tyonek zone. Current drilling history Marathon Oil Co. drilled the Corea Creek 1 wells in 1996, recovering gas at a rate of 11 Mcf per day, verifying the size of the Falls Creek gas accumulation. In 2000, Marathon drilled and logged the Grassim Oskolkoff 1. In mid-2001, Marathon tested the Tyonek interval and completed the Grassim Oskolkoff 1 as a gas producer. (See discovery announcement in Jan. 27 issue of PNA.)
Marathon is currently drilling a second well at the Grassim Oskolkoff location.
The state said Unocal and Marathon have applied state-of-the-art seismic and well log interpretations to evaluate natural gas potential in this area over the past few years. Because the crest of the structure parallels the coastline, the acquisition of quality seismic data along the inter-tidal transition zone is technically challenging and costly, but the state said that in May 2001 Marathon and Unocal acquired a high-quality 2D seismic line along the crest of the Ninilchik anticline in the South Ninilchik unit and two other seismic lines to the north. Exploration plans Unocal has committed to drill one new exploration well and acquire additional seismic data within the unit area during the two-year term of the initial plan of exploration.
Early in 2002, the state said, Unocal plans to drill the Pearl well as a straight hole, offsetting an earlier well, to a total depth of 9,200 feet, from 1,970 feet FWL and 1,570 feet FNL of section 24 T1S-R14W, SM.
Also during the first year of the plan, Unocal will acquire new proprietary 2-D or 3-D seismic data within the unit area.
Unocal told the state that if the initial well is successful, it may drill one or more appraisal or development wells in the South Ninilchik structure during the initial two-year plan.
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