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Producers 2020: Challenges and opportunities for Amaroq
Nicolai Creek making gradual come back, but big threats remain Eric Lidgi for Petroleum News
The future of the Nicolai Creek unit will be decided by the outcome of two pending threats and one possible opportunity, according to operator Amaroq Resources LLC.
The company acquired the unit in early 2018, as part of the bankruptcy proceedings of former operator Aurora Gas LLC. (Amaroq Resources was previously known as Aurora Exploration LLC but was unrelated to Aurora Gas, despite shared names and histories.)
As a result of renewed investment through maintenance and upgrade activities, Nicolai Creek production doubled during the first year under the guidance of Amaroq. But the aging gas field is perpetually in need of investment to remain economically viable.
In its 2020 plan of development for the unit, Amaroq estimated that Nicolai Creek would become uneconomic in late 2020 or early 2021 without new investment. Amaroq appears to have forestalled that prediction but remains concerned about future work.
The company removed that forecast from its 2021 plan - a response to its investments.
The unit produced 92.881 million cubic feet of natural gas in the year ending Aug. 31, 2020, with 69% coming from the Nicolai Creek Unit No. 9 well and another 20% coming from the Nicolai Creek Unit No. 11 well, according to Amaroq.
Water conversion Without a better method for disposing produced water, the unit will soon become uneconomic, according to Amaroq. The company approached the problem by converting the depleted Nicolai Creek Unit No. 1B production well into a water disposal well.
Nicolai Creek Unit No. 1B was drilled in 2002 as a sidetrack of Nicolai Creek State No. 1A, which itself was a sidetrack of the original Nicolai Creek State No. 1 well. The well had cumulatively produced some 581.5 million cubic feet by September 2019.
The company began the conversion process by testing the injection potential of the well, followed by permitting activity to oversee disposal work. The Alaska Oil and Gas Conservation Commission issued a disposal injection order in late January 2020.
Amaroq converted the well during the spring and early summer. It deemed the well ready for injections by mid-June. The company was installing surface injection facilities as of late September 2020, when it submitted its 2021 plan of development to the state.
Under its proposal, Amaroq would inject non-hazardous Class II waste from other Nicolai Creek wells into two zones in the Tyonek between 2,307 and 2,370 feet measured depth. The company would not accept similar wastes from other operators in the area.
The company acquired surface injection facilities used at the Aspen No. 1 well and relocated the infrastructure to the Nicolai Creek well pad. The facilities are designed to handle approximately 200 barrels per day with maximum volumes of some 364 bpd.
The injections would void an estimated 34.2 million cubic feet of remaining recoverable reserves in the Carya 2-1.2 sand. But the company would still be able to access zones deeper in the well in the future because of the geology and well design at the unit.
In hearings for the disposal well, Amaroq estimated 1.8 billion cubic feet of proved reserves at the unit, of which some 1 billion was allocated to the Nicolai Creek Unit No. 10 well. That well is expected to produce between 100 and 200 barrels of water per day. The lack of a disposal option would threaten these proved reserves, according to Amaroq.
Given the relationship between the two wells, Amaroq suspended operations at NCU No. 10 until the water disposal issue was resolved. According to AOGCC production records, the suspension began in mid-2018 and remained in effect throughout this past summer.
Amaroq said a gravel pack or rig workover might lead to increased production.
The company attempted a coiled tubing cleanout in mid-2018, leading some of the water production complications now being addressed through the NCU 1B disposal project.
NCU No. 2 and No. 3 Amaroq shut-in the Nicolai Creek Unit No. 2 and Nicolai Creek Unit No. 3 wells as a result of mechanical issues. Both wells would require workovers to resume production.
The company restored the Nicolai Creek Unit No. 2 well to production in June 2020, following three years of inactivity. “The well is produced from time to time, pressure permitting,” the company wrote. According to AOGCC records, the well produced 1.867 million cubic feet over 20 production days in June; then 599,000 cubic feet over 11 production days in July; and 561,000 cubic feet over eight production days in August.
The Nicolai Creek Unit No. 3 well is shut-in pending a coiled tubing cleanout using 1.25-inch coiled tubing, which the company said is unavailable in Cook Inlet at the moment.
The Nicolai Creek Unit No. 9 and Nicolai Creek Unit No. 11 well have both been producing consistently following coiled tubing operations in mid-2018 and mid-2019.
Bonding The second threat is regulatory.
In its most recent plan, Amaroq said that an AOGCC proposal to increase bonding requirements would harm the unit. “If the operator is required to post a $2.4 million bond with AOGCC pursuant to the newly established requirements, the field immediately becomes uneconomic and is likely destined for cessation of operations,” Amaroq wrote.
Earlier regulations to insure the cost of plugging and abandoning wells required operators to post a $100,000 bond for single wells. The cost doubled to $200,000 to cover an entire portfolio of wells in the state. The proposed increase would create a graduated scale starting at $400,000 for one well and increasing to $30 million for more than 1,000 wells.
The $2.4 million figure cited by Amaroq would cover the six producing wells at the unit.
The proposal was especially troubling to smaller operators. The AOGCC received reconsideration requests from six companies, including Amaroq. The AOGGC has only approved one of those requests, reducing a proposed $1.6 million bond requirement at the AIX Energy Inc.-operated Kenai Loop field to an earlier $200,000 bond requirement.
The AOGCC made the adjustment because the company had a $950,000 deposit with the Alaska Mental Health Trust land office, in addition to its existing $200,000 bond.
Future investments The big opportunity is geologic.
“Nicolai Creek Unit has tremendous upside potential for conventional oil and gas, unconventional gas, and storage development,” Amaroq wrote in its 2021 plan. “If the operator is successful in attracting the additional investment dollars to pursue any or all of these upsides, the field would likely remain in operation for years to come.”
In particular, the company noted the potential of deep oil and natural gas prospects at the Nicolai Creek unit. But it made no plans to explore those prospects at any point in the near future. Apache Alaska Corp. previously acquired rights to those prospects and even acquired 3D seismic information over the acreage in early 2012, before leaving the state.
In a plan of development before the bankruptcy proceedings, Aurora Gas proposed a Nicolai Creek Unit No. 12 well targeting deeper sands in the Beluga and Upper Tyonek, north of current production.
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