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State expands Kenai’s North Fork unit Armstrong planning to drill at least 4 wells — 3 more than required — at its small field in the southern Kenai Peninsula Eric Lidji For Petroleum News
Armstrong Cook Inlet LLC is expanding its signature development.
The subsidiary of Denver-based independent Armstrong Resources Inc. plans to drill at least four development wells at the North Fork unit in the southern Kenai Peninsula.
Armstrong recently asked the Alaska Oil and Gas Conservation Commission for permission to drill the NFU No. 23-25, NFU No. 33-35, NFU No. 42-35 and NFU No. 22-35. The wells require the AOGCC to issue exemptions of its requirement that wells not be drilled within 3,000 feet of well capable of producing from the same pool.
Alongside that activity, the Alaska Department of Natural Resources recently agreed to expand the unit to include an additional 2,903 acres in a ring around its western side.
The unit initially contained 640 acres.
Armstrong originally asked to expand the unit to 4,801 acres.
Armstrong also asked to expand the Gas Pool No. 1 participating area at North Fork, but the state intends to address that request in a separate ruling from the unit expansion.
Better understanding Standard Oil Co. of California discovered gas in the North Fork area in December 1965 with the NFU No. 41-35 well, announcing a 3.37 million cubic foot per day test rate.
Socal shut the well in because of the lack of pipeline infrastructure in the southern Kenai Peninsula, but drilled the NFU No. 11-4 some six miles to the northeast in 1970.
Despite numerous changes in ownership, the field went undeveloped until Armstrong acquired it in September 2007. The company drilled the NFU No. 34-26 in 2008 and the NFU No. 14-25 and NFU No. 32-35 in 2010. That year, Armstrong also re-entered the NFU No. 41-35 to re-perforate the two sands Socal originally tested back in 1965.
Since April 2011, Armstrong has been producing from six separate Tyonek sandstones at North Fork, with cumulative production at nearly 1.8 billion cubic feet through March.
Almost half of that, or 884 million cubic feet, came from the NFU No. 41-35 well, while the least productive of the four wells, NFU No. 14-25, produced just 5.9 million cubic feet.
Armstrong recently shot 3-D seismic over the region that “greatly improved the regional structural definition of the four-way anticlinal North Fork closure,” according to the state.
Under its 46th plan of development, Armstrong built a pipeline and processing facilities at North Fork and brought the four wells online. The current 47th plan of development requires Armstrong to monitor and analyze well pressure, test additional zones in NFU No. 34-26, drill a fifth well targeting an untested segment of the Tyonek and work with Enstar Natural Gas Co. to bring gas to the village of Nikolaevsk by this past winter.
Armstrong and Enstar did not meet that original deadline, but are currently working through the state regulatory process to connect the village sometime this summer.
In addition to Nikolaevsk, the North Fork unit is the basis for expanding natural gas infrastructure to Anchor Point, as well as Homer and Kachemak City to the south.
The plan of development remains in effect through March 2013.
Royalty interest dispute The matter included an unusual request from a third party.
While considering the application, the Alaska Department of Natural Resources received a comment from Alliance Parties, an overriding royalty interest owner at North Fork.
The group asked the state to approve the request subject to three conditions: that Armstrong pay all past-due royalties within 30 days, that Armstrong pay all future royalties no later than 60 days after each month of production and that language codifying those requests be added to the unit agreement and the operating agreement.
According to the state, neither Alliance Parties nor the other overriding royalty interest owners have received revenue from the four producing wells at North Fork, but Armstrong Cook Inlet has made correct royalty payments to the state and has placed revenues from current production into escrow for distribution to the royalty owners.
Until the state rules on the expanded Gas Pool No. 1 participating area, Armstrong “does not know the approved allocations by which to pay the (overriding royalty interest owners) of the tracts within the expanded” participating area, the state wrote in its ruling.
Because royalty interests are otherwise a third-party transaction, the state said it would be “inappropriate” to include Alliance Parties’ conditions as part of its ruling on the unit.
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