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THE EXPLORERS 2004: Marathon: Still going strong after 50 years
Kristen Nelson & Kay Cashman Petroleum News
Marathon Oil celebrated 50 years in Alaska in 2004. The company, which is based in Houston and has its Alaska headquarters in Anchorage, operates onshore in Alaska’s Cook Inlet basin.
Marathon’s predecessor, Ohio Oil Co., purchased its first leases on Alaska’s Kenai Peninsula within the Cook Inlet basin in 1954. Initially, the company bought minority interests in leases operated by other oil companies, including a working interest in the Swanson River prospect where oil was discovered in 1957. It was that discovery that convinced Congress the territory of Alaska could support itself as a state.
In 1959, Marathon participated in the Kenai gas field discovery and in 1961 had begun supplying natural gas to the Anchorage utility market.
Marathon’s first offshore oil field discoveries were in partnership with Unocal at Trading Bay and McArthur River in 1965.
Marathon was a partner with Unocal, operator of the Cannery Loop gas field discovery in 1979. Production from the field began in 1988.
In 1986, Marathon set the Steelhead platform at McArthur River. This platform, designed and installed by Marathon, is the largest offshore platform in Cook Inlet.
Getting into LNG business Marathon and other companies were exploring for oil in Cook Inlet and, in the process, discovered a lot of gas. Finding a market for that gas was a challenge.
Marathon began looking at opportunities for liquefied natural gas, partnering with Phillips Petroleum (now ConocoPhillips) to build an LNG plant at Nikiski. Completed in 1969, the facility exported the first LNG out of North America and the first LNG imported into Japan. Marathon manages shipping to the Far East, while ConocoPhillips manages the plant.
Marathon was active in both oil and gas in the inlet until 1996, when it sold most of its oil production.
The company then focused on natural gas, and in recent years has been an aggressive natural gas explorer, with discoveries at Wolf Creek, Ninilchik and most recently Kasilof.
In addition to supplying some of the gas to the LNG plant, Marathon also supplies more than half of the natural gas for Southcentral Alaska utilities.
The Kasilof well was Marathon’s first dual-lateral well in Alaska, and Marathon’s Alaska business unit manager, John Barnes, said Aug. 13, 2004, that the company also believes it is the first dual-lateral well in Cook Inlet.
He said the well “has full integrity on both legs for pressure and fluid control.”
The 17,000-foot extended reach well, drilled from onshore between Glam Gulch and Kenai north of the Ninilchik unit, had offshore bottom holes in Marathon’s Kasilof unit.
“That’s probably the most ambitious well we’ve drilled in several years,” Barnes said November 2003, adding that the junction had been set and Marathon was drilling the first well from the main bore.
Marathon provided few details on the discovery, but Houston-based Marathon spokesman Paul Weeditz told Petroleum News in August 2004 that the well, the Kasilof South No. 1, was completed in February 2004. “Both legs of the dual lateral encountered natural gas,” he said.
“The results of the well are under evaluation as part of determining economic feasibility of development,” Weeditz said. If development is sanctioned, he said, it will take about five miles of pipe to tie Kasilof into the Kenai Kachemak Pipeline.
Marathon owns its own drilling rig, but Barnes said that the company used Nabors rig 273 at Kasilof, because there “was only one rig available that could drill that big a well.”
More drilling successes Marathon has drilled 38 gas wells in the Cook Inlet basin since 1998, including 12 exploration wells. The company said nine of the exploration wells have been successful and three have been suspended pending further evaluation.
That level of drilling activity, Barnes said, reflects a step change, most of which occurred when the company had a truck-mounted rig, Glacier Rig No. 1, built for drilling on the peninsula.
In the late 1990s, prior to the arrival of the Glacier rig, he said, a couple of wells a year was about the norm.
The Glacier rig began work in early 2000, and Barnes said that aside from Christmas holiday shutdowns and maintenance, the rig has worked pretty much non-stop, “drilling wells primarily, a couple of re-drills” and rehabilitating some old wells.
Over the winter of 2003-2004, Barnes, said, drilling activity spiked, with three rigs working, two Nabors rigs in addition to the Glacier rig.
“Currently the Glacier drilling rig is only rig Marathon has working. Marathon is currently moving through its 2005 capital budget process and we are considering two rig program at this time for next year,” Barnes said in October 2004.
Partners in Ninilchik unit and KKPL The Marathon-Unocal discovery at Ninilchik was announced in early 2002, with the discovery well on the 25,000-acre Ninilchik prospect testing gas at restricted flow rates of up to 11.2 million cubic feet per day. Marathon, operator at Ninilchik, holds a 60 percent working interest ownership in the prospect.
Drilling so far has been at either end of the formation, Barnes said, with three-dimensional seismic shot over the center of the structure being evaluated. “Based on that seismic we’ll drill the central portion of the structure,” he said. Ninilchik, like Kasilof, is an offshore formation drilled from onshore.
There were four drilling locations by mid-August 2004 and there will probably be one or possibly two more locations to fully delineate the field, he said, “and then an ongoing drilling and development program there after it’s fully delineated.”
Eight wells had been drilled at Ninilchik by October 2004. “We expect to drill five new wells during the next year with additional wells to follow pending results of our 2005 drilling plan,” Barnes said.
To tie Ninilchik gas into the Kenai Peninsula gas pipeline system, Marathon and Unocal formed Kenai Kachemak Pipeline LLC, and built a pipeline running from Ninilchik to the nearest tie-in point. Gas began moving through that line Sept. 2, 2003, Barnes said. “The Kenai Kachemak Pipeline is the first new gas transmission line … in the Cook Inlet … in well over a decade,” he noted.
Gas discovered at Wolf Lake In 1998, Marathon announced its Wolf Lake gas field discovery, finding gas in an area that had previously been explored for oil, Barnes said.
Wolf Lake, in the Kenai National Wildlife Refuge some 12 miles northeast of Soldotna, came on line in November 2001, via a five-mile pipeline, “the first Cook Inlet gas field discovery to be brought to market since 1979,” Barnes said when production was announced. “The Wolf Lake discovery is a direct result of Marathon’s commitment to a multi-year drilling effort in the Cook Inlet,” he said, noting that Marathon has viewed “Cook Inlet as an area with a proven resource base, waiting on the right market conditions to support development.”
Marathon has also completed an environmental impact statement for its East Swanson prospect on the wildlife refuge, “only the second EIS that has been approved for development on the refuge; the first was our Wolf Lake project,” Barnes said.
And, he said, Marathon has “exploration prospects at Swanson River and around the town of Sterling where we shot an onshore seismic survey” in 2003, as well as other leads the company is working in the geologic and geophysical areas.
Maximizing production In addition to exploring for new sources of natural gas, Marathon is focused on maximizing production from its existing gas fields. It invented the EXcape completion technology for Beluga formation gas sands at its Kenai field, allowing it to produce gas not previously thought economic.
Barnes said Aug. 13, 2004, that the EXcape technology received an award from “World Oil” as the best drilling and completion technology of the year. The technology “was developed specifically for our Kenai gas field, as an offshoot of how do you go into these older, tighter, less productive reservoirs,” he said.
And is it successful? A “significant proportion of our ongoing expenditure is directed toward the EXcape completions in the Beluga formation in the Kenai gas field,” Barnes said, with about 35 percent of gas now being produced at Kenai a result of EXcape-type completions. A large portion of the Beluga formation, prior to EXcape, was not regarded as commercial, Barnes said.
EXcape is used extensively at Kenai, he said, and Marathon has commercialized the technology “and it’s starting to take off in some other locations” with other operators.
Marathon sees opportunities in Cook Inlet, Barnes said, but there are also challenges, including permitting, pipeline regulation and a shrinking industry.
The permitting issue is a difficult one to solve, he said, “because in and of itself, each one of these permits makes sense,” and there is a good intention behind each permit. It’s the cumulative effect, he said, that is the problem, with 30-plus, 40-plus or even 50-plus permits required for a project, depending on the project and the landowner.
Barnes described the result as “issue creep, where what you thought would take a year takes two years, and you just start to accept that. And then two years is four years. It’s one permit; it’s now 45 permits.
“And it’s that creep, across the board, whether it’s on cost, permitting, timing, regulation, that’s a tough thing to turn around…”
Marathon is working with the state administration and the Legislature on these issues, he said.
If you don’t know how long it will take to complete a project because of permitting and regulatory uncertainties, he said, that is “not conducive to investment.”
The shrinking industry Barnes said there is another challenge: the shrinking Cook Inlet service industry. In the 1980s, he said, when he first saw the Kenai, there were a lot of service companies.
“That’s not the case anymore,” he said.
The oil and gas industry in the inlet has gotten smaller, and the number of service and supply companies has shrunk. Fewer people are employed in the industry, he said, and there is less competition and fewer alternatives for service, “so it’s harder to see a vibrant strong industry in that environment.”
It’s a factor of activity level, he said, and as a result, “it almost feels like we’re becoming more remote, not less. … if you were working in Gabon or Russia, you might actually have a stronger service industry than we have here… it’s where the industry hot spot is,” he said.
The activity level in Cook Inlet is down, he said, and as it has declined, the industry has gotten weaker.
It’s all the service industries, he said: drilling, mud, labor, welding.
Barnes said Marathon’s capital budget in Alaska is a changing number as projects are added or deleted during the year, but said $70 million was probably in the ballpark.
Ben Schoffmann, Marathon’s Alaska asset team operations superintendent, said the company’s Alaska drilling budget has been “fairly flat, but slightly increasing on the number of wells, as we’ve improved efficiency.” Infrastructure has become a bigger capital requirement “as we have to move away from our mature assets and find new fields.” If a well is “off the infrastructure,” Schoffmann said, “then you’ve got a significant facility investment that’s required,” as opposed to the moderate investment to tie in a well at an existing field.
New infrastructure includes everything from field gathering systems to a building to put a computer in to new pipelines, he said.
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