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Providing coverage of Alaska and northern Canada's oil and gas industry
October 2022

Vol. 27, No.40 Week of October 02, 2022

This Month in History: Wanted: Level playing field

20 years ago this month: Prices are good, Alaska has market, lots of gas, but if Marathon is going to continue to invest in inlet, state must address regulations, incentives

Kristen Nelson

Petroleum News

Editor’s note: The following is a reprint from the Oct. 6, 2002, issue of Petroleum News Alaska.

Marathon Oil Co. has drilled 23 gas wells onshore Cook Inlet since 1998, including seven this year, and will spend almost $36 million in Cook Inlet this year - up from $11 million in 1998.

Marathon wants to continue exploring for natural gas on the Kenai, where the company is involved in seven active properties, six of which it operates, has six exploration prospects and is partnering with Unocal Alaska Resources in a natural gas pipeline.

But, Dan Taimuty, Marathon’s Alaska manager of oil and gas developments told the Alaska Support Industry Alliance Sept. 26, the company competes for investment dollars with projects worldwide, and while Cook Inlet has the resources, access and market, it is not competitive worldwide in permitting and in incentives.

Exploration success, plans

Marathon has had recent exploration success, announcing a gas discovery at Ninilchik in January with project partner Unocal Alaska Resources.

“This discovery was the realization of a focused exploration effort which Marathon initiated in late 1994 when our Wolf Lake and Sterling Deep discoveries were made,” Taimuty said. Unocal joined Marathon in the Ninilchik exploration effort in late 2000: Marathon is operator and holds a 60 percent working interest; Unocal holds the remaining 40 percent.

Two additional wells have been drilled and tested since the discovery announcement, he said: “The discovery well and the two follow-up wells tested at a combined rate of 30 million cubic feet per day and proved up sufficient gas to justify commercial development.”

Taimuty said testing of the fourth well has just been completed.

“While I can’t comment on the results of the fourth well, I can confidently say that Marathon and Unocal are very encouraged by the results of the entire Ninilchik program so far.”

Marathon has also applied to the state to form a Kasilof exploration unit on offshore state leases between Kenai and Ninilchik and is working on budget plans to drill in 2003. The well would be drilled from an onshore pad.

“The first well will likely be world-class in nature, as the reach required to access the structure from onshore is significant,” he said. If commercial gas is found at Kasilof, development would take place over several years and the Kenai-Kachemak Pipeline would bring that gas to market.

Gas pipeline planned

Marathon and Unocal are partners in the Kenai Kachemak Pipeline LLC, and will construct a 33-mile 12-inch gas transmission pipeline from Ninilchik to the Kenai gas field. The gas pipeline, an open-access transportation system, will carry gas from Ninilchik to Kenai, Taimuty said, and with capacity of more than 120 million cubic feet a day has “ample un-contracted capacity” for either firm or interruptible gas transportation.

Permitting for the gas pipeline is under way, he said, and the companies plan to begin construction next year.

“Marathon believes that KKPL may also stimulate other natural gas developments south of Kenai,” he said.

Technology to reduce costs

To continue to work what it sees as opportunities in the Cook Inlet basin the company has used technology to help make exploration and development economic.

In 2000, Taimuty said, Marathon commissioned its Glacier No. 1, a truck-mounted drilling rig, and has since drilled over 139,000 feet of new hole. The rig “is state of the art when it comes to environmental stewardship,” he said, equipped with hospital-quiet mufflers and providing up to four levels of containment for drilling fluids. Because the rig is truck mounted, it can “move from one location to another very quickly and cost effectively compared to the other drilling rigs available in the Cook Inlet.”

In 2001, the company began using the Excape technology, designed and developed by Marathon for production wells in the Kenai gas field, to “fracture stimulate multiple … gas reservoirs in as little as two days,” work which, “without Excape… could take over two weeks and would be most likely uneconomic,” Taimuty said.

Focus on Cook Inlet natural gas

Marathon is focused on Cook Inlet natural gas, he said. In addition to gas at Ninilchik, Kenai and Kasilof, Marathon is also developing satellite fields at Swanson River in conjunction with Unocal. A draft environmental impact statement is out for public comment. These satellites will be tied into the Swanson River infrastructure - as Marathon’s earlier Wolf Lake satellite was tied into Beaver Creek. Production at Wolf Lake began last November, and like Wolf Lake, Taimuty said, the Swanson River satellites are on lands in the Kenai National Wildlife Refuge where the subsurface oil and gas mineral rights are owned by Cook Inlet Region Inc.

Permitting a problem

Marathon believes that there is more gas to be developed in Cook Inlet, and both access for leasing and a market exist. Prices for gas have been low in Cook Inlet, Taimuty called it “historically a distressed gas price environment,” but recent utility agreements have been at higher prices, so return to companies is improving.

There are, however, two problems that Marathon sees when it tries to compete worldwide for investment dollars.

The first, Taimuty said, “is a reasonable and predictable regulatory and permitting environment.” In this area, “Marathon has significant concerns… As an example, to permit an onshore exploration well in Alaska normally takes a minimum of six to eight permits or clearances… This is easily two to three times what might be required elsewhere in the United States.”

Permitting in Alaska involves “numerous stakeholders with very specific yet often redundant - or worse yet contradictory - requirements.

“In a number of instances, the permitting agencies cannot even agree as to what is actually required, making it highly unlikely that the companies can be assured that they can fully understand the requirements,” he said.

And stipulations for permits have gone - over the last several years - from two to three on a permit to as many as 20.

“And this is despite the fact that many of our normal operating procedures are aimed at compliance plus - that is, over and above regulatory requirements of most permits.”

Lack of incentives

Marathon is also concerned about the lack of fiscal stability in Alaska, Taimuty said, and would like to see incentives for companies to reinvest in the state.

Marathon has tried for three years to get the state Legislature to pass an investment tax credit for oil and gas exploration and development, but with no results, he said.

“At this time Marathon is uncertain whether it will continue to fight this effort alone.”

And, he said, Alaska’s “fiscal environment (is) more of a risk to success than a benefit.” Marathon will continue to do business in Alaska, Taimuty said.

“However,” he said, “our Alaska projects need to compete internally for future investment dollars and the risks uncovered here are real considerations in how companies decide how to allocate their capital resources.”






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