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THE INDEPENDENTS 2003: A year of change for Forest Oil in Cook Inlet
Kristen Nelson Petroleum News
It should have been a great year for Forest Oil’s Alaska operations: the trials and tribulations are over and Redoubt Shoal is in production, and the company has other prospects to explore, including Cook Inlet acreage and exploration license areas.
The company has identified some of those Cook Inlet exploration targets as prospective, and is just awaiting the availability of a jackup drilling rig in Cook Inlet. And Forest has three exploration licenses: 398,445 acres in the Copper River basin issued in 2000, and two Susitna basin licenses, 386,207 acres and 471,474 acres just awarded.
But instead of a year of celebration it’s been a year of reevaluation.
Forest changed leadership nationally and locally and began a reevaluation of the Redoubt Shoal reservoir in the face of production the company has described as “disappointing.”
Management changes Production began at Redoubt in December 2002 and the onshore facilities were completed in the first quarter of 2003. Craig Clark, then Forest’s president and chief operating officer, told analysts in May that production was some 4,000 barrels per day from four wells, but that tanker delays at Drift River, where the oil is loaded for shipment, were slowing movement of oil to the refinery.
At the end of July, Forest said that Robert Boswell, the company’s chairman and chief executive officer, was resigning and that Clark had been named president and CEO.
Clark told analysts in mid-August that the company would continue to cut its costs, and would reduce capital expenditures on frontier exploration and development, including Alaska, from the 20 percent range to the 5-10 percent range.
The company is going to cut its frontier exploration exposure because that program in “the last decade has produced rates of return that were not consistent,” Clark said. He said rates of return “have been hampered by a strategy which allocated large amounts of capital for frontier exploration,” which “… not only presents hydrocarbon risk, but as we’ve experienced, significant development risk.”
And in Cook Inlet, Forest will “work to create a ‘go forward’ development plan for Redoubt Shoal that makes financial sense based on the knowledge gained — but we won’t be gaining more knowledge.”
In early September Clark emphasized to analysts that he didn’t plan to throw away value already created in the company’s frontier exploration program: “I just want to eliminate our dependence on one single project and the over allocation of capital and manpower to frontier activity.” He also said the company needs “to reduce the number of frontier areas through sales, trades or farm-outs.”
Reservoir study initiated Clark also described results at Redoubt as “disappointing.”
Gary Carlson, then Forest senior vice president and head of the company’s Alaska region, told Petroleum News in June that the Redoubt reservoir was producing unexpectedly large amounts of water, and said that production had dropped from 4,000 bpd to around 3,500 bpd and was not expected to improve until more wells were drilled. Clark said in September that the water the company saw on a test of the Redoubt Shoal No. 6 well and on the Redoubt No. 4A logs, “is not consistent with the current mapping. We started a geologic study with a team from Denver to redo our geologic model,” he said, and the company hopes to have “a better picture of the reservoir and the reserves by year end.”
Clark told analysts there would be changes at Forest, and in August those changes were felt in Alaska.
On Aug. 21 a Forest spokesman confirmed that both Carlson and Paul White, the Alaska drilling manager, had left the company.
Forest said Sept. 24 that it had named Leonard Gurule, a former ARCO executive, as senior vice president of its Alaska operations. Gurule, most recently chairman of the board and CEO of Virginia Indonesia Co., previously spent 19 years with ARCO, most recently as executive vice president operations for ARCO Indonesia. Gurule also worked for ARCO in Alaska, managing ARCO’s Prudhoe Bay operations and construction activities, engineering support for ARCO’s Alaska exploration activities and petroleum engineering support for ARCO’s Kuparuk field. He has a bachelor of science degree in engineering from the University of New Mexico.
2000: Forest merges with Forcenergy Forest’s interests in Alaska’s Cook Inlet date from July 2000, when it merged with Miami-based Forcenergy.
Those were heady days for the company, and Boswell said the merger “places the company in one of North America’s highest potential frontier exploration areas in Alaska with an established platform for expansion.”
Forest officials said they were familiar with Forcenergy from the Gulf of Mexico and Alaska, and saw two strengths in the merger: the ability to capitalize on Forcenergy properties in the Gulf of Mexico and possibilities in Alaska, specifically using Cook Inlet as a platform to expand in the state.
In Alaska, Forcenergy’s Redoubt Shoals development project stalled when the company ran into money difficulties in the late 1990s, but by 2000 was back on track with officials predicting that, if successful, the development could begin production at 5,000 barrels per day and rise to 20,000-30,000 bpd, which would have effectively doubled crude oil production from Cook Inlet.
Forcenergy also had a large inventory of undeveloped prospects, officials said, including the Sabre prospect in Cook Inlet, where the company had shot 3-D seismic, and one of three to four 50-100 million barrel prospects which Forest said it expected to drill over the next three to four years. Forest also said it believed there was a lot of potential left in the Unocal-operated McArthur River field, in which Forcenergy was a partner. And Forest said it agreed with Forcenergy that there was potential in other areas of Alaska.
Property base in Alaska from Forcenergy Forcenergy began to acquire properties in the Cook Inlet in Southcentral Alaska in October 1996 when it bought some 40,000 acres of existing oil and gas leases at the Redoubt Shoal prospect.
In early December 1996, Forcenergy acquired Marathon Oil Co.’s Alaska oil interests, primarily partnerships in fields operated by Unocal in Cook Inlet, but also including minor North Slope interests. That acquisition made Forcenergy a partner in the Cook Inlet Unocal-operated McArthur River and Trading Bay fields, and gave it production. The companies expanded on that partnership, forming an alliance for developing and exploring and jointly acquiring tracts in the state’s December 1996 Cook Inlet lease sale.
In 1997, Forcenergy purchased the assets of Stewart Petroleum out of bankruptcy, and became operator of the West McArthur River field, an offshore accumulation being produced from an onshore drill site on the west side of Cook Inlet.
Redoubt unit formed in 1997 Forcenergy applied for a unit at Redoubt in 1997. There were two leases at the prospect which would have expired in 1998 if the unit had not been formed. In exchange for approving the unit, the state got a commitment for an exploration well, or a contract for a platform, by the end of 1999. Forcenergy decided that rather than bringing in a jackup rig to drill an exploration well, it would build a platform from which to drill the exploration well — a platform which could be converted into a production platform or moved to a second location if drilling results at Redoubt did not prove up a commercial prospect.
Forcenergy continued to invest in Cook Inlet: it led the bidding in Cook Inlet lease sales for three years running and by 1999 had nearly 180,000 acres in Alaska and was the sixth largest holder of state oil and gas leases. Forest Oil’s state oil and gas acreage position, some 179,000 acres, is about the same today.
But it took on heavy debt in doing so, and as low oil prices took their toll, Forcenergy filed for Chapter 11 bankruptcy in 1999, which led to its merger with Forest, announced in the summer of 2000 and completed in December of that year.
Redoubt startup delayed Forcenergy’s financial problems delayed Redoubt development, and the Osprey platform was not set in Cook Inlet until 2000.
Osprey is the first platform set in Cook Inlet since 1986, and financial difficulties were not the only problems the project encountered. Development was also delayed by suits brought by environmental groups against the state of Alaska over permits for Redoubt Shoal exploration, and then for Redoubt development. The state and Forest, then the owner, defended, and eventually the Alaska Legislature intervened.
Forest Oil completed drilling the first well at Redoubt in February 2001 and brought the first well on production Dec. 9, 2002.
Carlson, then head of Forest’s Alaska operations, described the permitting and legal struggles to the Resource Development Council in November 2002, shortly before production began.
Starting in 1996, Carlson said, Forcenergy and then Forest Oil “spent over $250 million in Cook Inlet, the majority of it on the Redoubt Shoal field.”
The Osprey platform is the first in Cook Inlet to be electrified with power from shore, supplied via cable, he said, and the drilling rig is being converted from diesel-fired to electric. The Osprey is the first Cook Inlet platform designed to re-inject produced water, Carlson said, the first development program in Cook Inlet with all of the drilling cuttings injected and the first pipeline system in Cook Inlet that used bore holes to protect the bluff.
With all of that, Carlson said, “it took over four years to get the permits,” and this for a “project within an oil and gas development area and where the facilities were built on private land.”
And, Carlson said, “if the Legislature had not been in session and willing to react to these issues, there would have been another year lost” in trying to get the project started up.
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