Providing coverage of Alaska and northern Canada's oil and gas industry
September 2019

Vol. 24, No.36 Week of September 08, 2019

Producers magazine preview: Amaroq doubles Nicolai Creek production

Well work pays dividends in improving well performance; company focusing on dealing with water and sand disposal as wells age

Alan Bailey

Petroleum News

Thanks to remedial and upgrade work involving the Nicolai Creek No. 10 well, gas production from the Nicolai Creek field onshore the west side of Cook Inlet has recently doubled, Scott Pfoff, president of Amaroq Resources, the field operator, told Petroleum News on Aug. 30.

“We’ve gone from about 250,000 cubic feet (per day) to 500,000 cubic feet (per day),” Pfoff said.

However, as the field continues to age, there are challenges resulting from long term production declines. In particular, the field’s gas compressors were designed to handle larger volumes than are now being produced. And the wells tend sometimes to load up with excess water, Pfoff said.

Acquired in 2018

Amaroq acquired the field in January 2018 as part of the fallout from the bankruptcy of Aurora Gas, the previous field operator - Aurora Gas had operated five onshore gas fields on the west side of the inlet. At the time of its Nicolai Creek purchase Amaroq had been called Aurora Exploration, a completed separate company from Aurora Gas. Given the name confusion, in 2018, after the Nicolai Creek acquisition, Pfoff changed the name of his company to Amaroq Resources. Alaska oil and gas investor Paul Craig has a one-third interest in the company through Craig’s company, Trading Bay Oil & Gas LLC.

Since its acquisition of the Nicolai Creek field, Amaroq has pursued a program of field maintenance and well workovers, rather than drilling new development wells. That strategy continues, with the company focusing on achieving good performance from the field’s existing wells, Pfoff said.

The field has six gas wells, four of which are currently producing gas. Two of the wells, the No. 2 and No. 3 wells, have been shut in for some time because of mechanical issues - both of these wells probably require drilling rig remediation and Amaroq has no near term plans for dealing with them, Pfoff commented.

In 2018 Amaroq conducted a slickline operation on the No. 9 well, boosting production from that well by 50%. And a coiled tubing workover of the No. 11 well in the third quarter of that year increased that well’s performance by around 85%.

The No. 10 well

The focus this year has been the No. 10 well. Remedial work on this well during the first quarter of the year resulted in excessive water production. As a consequence Amaroq had to shut the well in until relatively recently. The company has now been able to stabilize production at significantly higher levels than previously.

“We increased our water storage capabilities and did some additional upgrades to surface facilities,” Pfoff said.

One issue involved fine sand passing through screens designed for sand capture, a problem that necessitated improvements to the sand handling capabilities of the surface facilities, he said.

There is also some parted tubing downhole in the No. 10 well. But fixing this would require the use of a drilling rig. So Amaroq has been conducting the workover operations and surface facility improvements ahead of a decision on whether a rig operation would be economically justified. It is possible to continue operating the well as is, albeit at a production rate lower than would be possible if the tubing is fixed, Pfoff said.

Sand and water production

As the field matures, the disposal of produced sand and water has become an issue. Currently the sand and water are stored at the surface. However, disposal of these waste materials is needed.

Amaroq plans to convert one of the Nicolai Creek wells to a water disposal well. The company has been talking with the Alaska Oil and Gas Conservation Commission about this, with a view to filing a permit application for water injection.

“As a result of those discussions we’re going to perform injectivity tests on the well we want to convert, and then we’ll incorporate those results in our application,” Pfoff said.

Further development?

Amaroq has no plans for exploration outside the Nicolai Creek field, Pfoff said. However, there is potential to extend the existing field. The company is also interested in developing further oil and gas pools at deeper levels below the field, in the Nicolai Creek unit. Currently, rights to those deeper prospects belong to Apache Alaska Corp., which acquired 3D seismic over the acreage in early 2012.

In its current plan of operations, filed with the state, Amaroq has acknowledged the potential to drill an additional production well, the Nicolai Creek No. 12 well, targeting deeper sands in the Beluga and Upper Tyonek formations to the north of the current production area. Aurora Gas had conducted an evaluation of this potential well. However, Amaroq does not want to tackle this until the company has dealt with achieving good performance from the field’s existing wells, Pfoff said.

In addition to continuing gas production at Nicolai Creek, Amaroq has also considered the possibility of converting part of the field into a gas storage facility, with the capability of holding between 2.5 billion and 3 billion cubic feet of gas. An engineering study conducted several years ago confirmed that possibility. But, in the absence of any recent interest from potential gas storage customers, Amaroq has no current plans to proceed with the storage option.

“It’s not the kind of project we can go out and do on spec,” Pfoff said.

AOGCC bonding

One challenge that has emerged for Amaroq is a new AOGCC policy to increase the levels of surety bonding required for the plugging and abandonment of defunct oil and gas wells in the state. While the AOGCC has been concerned that traditional bonding levels fall short of the realistic cost of adequately plugging a well, increased bonding levels increase field operation costs and hence impact the economics of a field: Small operators such as Amaroq have argued that, if the state sets bond levels that are too high, the state will lose some oil and gas production when some fields are forced to close as a consequence.

On the other hand if an operator fails to plug and abandon a well, the cost of the plugging operations will default to the landowner, often the state of Alaska.

In late 2017 Amaroq’s purchase of Nicolai Creek was delayed after the AOGCC ruled that it required $7 million in surety bonding for the field’s wells. The purchase ultimately went ahead after the commission reduced the bonding requirement to $200,000. For many years the minimum bonding requirement in Alaska had been not less than $100,000 for a single well and not less than $200,000 for blanket coverage of all an operator’s wells in the state. However, the commission had only required bonding at these minimum levels, except in situations where there had been regulatory violations.

After lengthy hearings, in May of this year the commission increased the minimum statewide bonding level to $400,000 per well for one to 10 wells, with minimum bonding levels running to millions of dollars for larger numbers of wells. Pfoff said that the bonding levels as now stipulated render the Nicolai Creek field uneconomic. Although, the increased bonding was required by Aug. 16, Amaroq had meanwhile filed a motion for reconsideration of the revised regulations, Pfoff said. Elevating the bond amount for Amaroq remains on hold until the motion has been considered, he said.

A healthy market

At the same time, although Pfoff is concerned about lack of competition, given the few gas producers in the Cook Inlet, he sees the Cook Inlet gas market as relatively healthy.

“Right now, the way I see it, I can increase production quite a bit at Nicolai Creek and not have any trouble selling the gas at a good price,” Pfoff said.

Using the current wells and well completions the field probably has a remaining four to five-year life, Pfoff said. But, with much upside possible, if successfully developed, field life could extend considerably, he said. And Pfoff expressed satisfaction with the progress that his company has made in saving the field from closure.

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