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THE EXPLORERS 2005: Chevron ups Alaska assets with Unocal deal
Following Unocal takeover Chevron still meeting Alaska staff and looking at the Cook Inlet operations Alan Bailey Petroleum News Staff Writer
With the ink barely dry on the Chevron Corp. takeover of Unocal, Chevron declined to comment in the fall of 2005 for this edition of The Explorers magazine on the company’s plans in Alaska.
Chevron shareholders approved the takeover on Aug 10, following a lengthy and contentious struggle with Chinese oil and gas company CNOOC Ltd. for the acquisition of Unocal.
John Zager, Unocal’s general manager in Alaska, continues to manage the Alaska Unocal assets as its own entity, separate from Chevron’s other oil and gas interests in the state.
“We are still looking at (the newly acquired Alaska) assets and meeting people,” Mickey Driver, Chevron’s external relations advisor told Petroleum News.
Unocal made its first discovery in Alaska in 1959, but Chevron’s own history in the state goes back more than 100 years. Chevron has long held partnership interests in properties such as the producing Prudhoe Bay unit and the undeveloped Point Thomson unit on the North Slope; the Beluga gas field in Cook Inlet; and the trans-Alaska oil pipeline. Although the company was once a major explorer in the state, including on the Beaufort Sea outer continental shelf, Chevron has been quiet on the exploration front in recent years. It pulled out of the National Petroleum Reserve-Alaska in 2002 but has not made any other recent major divestitures of Alaska leases.
Operator in ANWR Chevron is operator of the 50/50 partnership with BP in the only leased acreage in the Alaska National Wildlife Refuge’s coastal plain (1002 area). The leases are on private land — the Native regional corporation for northern Alaska, Arctic Slope Regional Corp., owns the subsurface oil and gas mineral rights and the village corporation in the area, Kaktovik Inupiat Corp., owns the surface.
Chevron drilled the KIC well southeast of the village of Kaktovik in the winters of 1985 and 1986. The KIC well is the only well ever drilled in ANWR and the results of the drilling are still confidential.
ANWR remains closed to oil and gas development under the terms of the 1980 Alaska National Interest Lands Conservation Act, although the U.S. Congress set aside the small strip along the coast – the 1002 area — for possible future development because of its oil and gas potential.
A long-time supporter of opening the 1002 area to oil and gas exploration, Chevron said in March 2005 that it continues to support drilling in the coastal plain.
“Opening up ANWR is an important step forward in meeting our nation’s energy needs,” Driver said.
Chevron is a major lease owner in Point Thomson, a large field containing both oil condensate and natural gas on the eastern edge of state lands, adjacent to ANWR. Point Thomson has long been a focus of contention regarding whether, when and how the field should be developed. The field contains very substantial petroleum resources. But operator ExxonMobil and the lease owners have said that they have been unable to identify an economic standalone condensate project at Point Thomson, and that they would prefer instead to concentrate on designing a natural gas project in connection with ExxonMobil, BP and ConocoPhillips’ tentative plans to build a natural gas pipeline south from Prudhoe Bay to Canada and Lower 48 markets.
The Point Thomson issue came to a head in early October when Alaska’s Division of Oil and Gas rejected ExxonMobil’s 22nd plan of development for the unit. The division wants to see commercial production from Point Thomson by Oct. 1, 2009, and the fulfillment of 2006 development drilling commitments. The division requires ExxonMobil to submit an acceptable plan of development for Point Thomson by Dec. 29. ExxonMobil told Petroleum News it will appeal the division’s decision.
Unocal in the Cook Inlet Unocal’s history in Alaska also goes back a long way — the company explored on the Alaska Peninsula prior to World War II. The company has been involved in Cook Inlet oil and gas exploration since the 1950s and is the operator of the Swanson River, Trading Bay and South Granite Point oil fields. The company operates the oil production facilities at Trading Bay and Granite Point around upper Cook Inlet.
Unocal is also a major gas supplier for Southcentral Alaska and, in addition to producing gas from its oil fields, owns major interests in the gas fields and prospects in the Ninilchik, Nikolaevsk and Deep Creek units. Unocal is operator at Nikolaevsk and Deep Creek. On the west side of the Cook Inlet Unocal has two small gas fields, Lewis River and Stump Lake.
In 2004 Unocal drilled one exploration well in the Nikolaevsk unit and another at the southern end of the Deep Creek unit, both towards the southern end of the Kenai Peninsula. The company has not announced the results from the drilling. The company also collected 25.41 miles of 2-D data in the Nikolaevsk unit in 2004, according to the annual status report for the unit.
Unocal’s Happy Valley No. 1 discovery well was drilled to a total measured depth of 10,871 feet in June 2003 in the Deep Creek unit southeast of Ninilchik. The well tested gas from two different Lower Tyonek reservoirs. The field discovery was confirmed when the Happy Valley No. 2 well was drilled in July 2003. The No. 2 well flowed gas from two Lower Tyonek reservoirs not seen in Happy Valley No. 1. Unocal has drilled nine additional delineation wells and acquired some 65 line-miles of 2-D seismic data in an attempt to delineate the structure and reservoir distribution within the field. The Beluga and Tyonek formations were found to be commercial in a number of the wells.
The company built a 15-mile natural gas transmission line to the Happy Valley A Pad where it constructed gas production facilities. And in November 2004 gas started flowing from the field. At that time Unocal Alaska spokeswoman Roxanne Sinz told Petroleum News that production began Nov. 5 from one well at a rate of 3-4 million standard cubic feet per day.
“We will ramp up production from additional wells as soon as the operation of our new facility allows,” Sinz said.
On March 13, 2005, the Alaska Oil and Gas Conservation Commission approved pool rules for Happy Valley. Recoverable gas at Happy Valley is estimated at 38.6 billion cubic feet, with an estimated 56.3 bcf of gas in place in the Beluga formation, 23 bcf of which is expected to be recoverable, and 37.4 bcf of gas in place in the Tyonek reservoir with an estimated 15.6 bcf recoverable.
Gas storage Unocal has pioneered the use of gas storage in the Cook Inlet area. Gas storage facilities enable excess gas produced during periods of low demand to be stored for use during periods of high demand — with gas supplies from the Cook Inlet struggling to meet the peak winter gas demands, gas storage is likely to become an important tool in the effort to meet year-round gas demand in Southcentral Alaska.
Several years ago Unocal started operating a gas storage facility that uses a reservoir in the company’s Swanson River field on the Kenai Peninsula. The Swanson River field lies inside the Kenai National Wildlife Reserve. The U.S. Fish and Wildlife Service formerly only allowed gas from the Swanson River field to be injected into the storage reservoir. However, Fish and Wildlife lifted this restriction in April 2005, thus enabling more flexible use of the facility.
Kevin Tabler, Unocal’s Alaska land manager, has told Petroleum News that the company has also tried unsuccessfully to use another Swanson River reservoir for gas storage. Tabler said that the company now has a proposal to try the use of a further Swanson River reservoir. That proposal still requires a gas storage agreement from the U.S. Bureau of Land Management.
Unocal’s most recent gas storage initiative at the aging Pretty Creek gas field on the west side of the inlet took a major step forward on Sept. 13, when the Alaska Division of Natural Resources issued its final best interest finding for a gas storage lease at that field. DNR determined that a gas storage lease for Pretty Creek will best serve the interests of the state of Alaska. Unocal proposes using the PCU No. 4 well and the existing infrastructure at Pretty Creek to inject and withdraw gas.
The Pretty Creek unit connects to the gas pipeline grid in the Matanuska-Susitna Borough and Anchorage through the Enstar Natural Gas Co. gas line that runs north up the west side of the Cook Inlet. The gas storage facility at Pretty Creek could release stored gas at a rate of up to 20 million cubic feet per day into the gas grid.
Industrial supply issues Dwindling Cook Inlet gas supplies have caused some significant gas supply problems for industrial customers on the Kenai Peninsula, especially for Agrium’s fertilizer plant at Nikiski.
Since early 2004 Agrium has filed two petitions with the Regulatory Commission of Alaska to regulate the Cook Inlet Gas Gathering System, known as CIGGS. Unocal and Marathon Oil Co. jointly own the privately operated CIGGS system that ships gas from oil and gas fields on the west side of the Cook Inlet to Nikiski on the east side of the inlet. Agrium has claimed that the private operation of CIGGS has limited access to the pipeline system and has thus become an obstacle to new gas supplies to the fertilizer plant from the west side of the inlet.
At the end of May 2005 Marathon, Unocal, Agrium, the Cook Inlet gas producers, Enstar Natural Gas Co. and the state of Alaska entered mediated negotiations to resolve the CIGGS issues. And on Sept. 27 the parties to the dispute filed a settlement agreement with the Regulatory Commission of Alaska. RCA has yet to rule on this agreement.
What of the future? The question of what will happen to Unocal’s Alaska assets following the Chevron takeover has become the subject of intense speculation in the state. Does Chevron see a place in its portfolio for Unocal’s aging and relatively small Cook Inlet oil fields? And what about the new gas fields and prospects? Is there another company that would be interested in buying the Unocal assets, in total or in part?
For answers, we’ll have to wait and see.
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