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Putting together the puzzle Aurora has developed known gas reserves on west side of Cook Inlet, shot 3-D programs, larger 2-D program, plans to stay onshore Kristen Nelson Petroleum News Editor-in-Chief
Aurora Power, Aurora Gas and Aurora Well Service are a family of companies — all working natural gas in Southcentral Alaska’s Cook Inlet basin.
The original company, Aurora Power, was formed 10 years ago to market natural gas to large customers and it currently sells some 7 billion cubic feet a year, serving some 1,200 meters, said the company’s president, Scott Pfoff. Almost 5 bcf went to large commercial customers, Pfoff told the Alaska Support Industry Alliance May 13, and the rest went to industrial users.
And, Pfoff said, Aurora has just signed a two-year agreement with the U.S. Department of Defense to provide natural gas to Elmendorf Air Force Base and Fort Richardson, the Anchorage, Alaska-area military bases, and will also be providing natural gas to a number of federal buildings. This is the company’s second Department of Defense contract, he said. Goal has been production The company’s goal from the beginning was to be a producer of gas, as well as a marketer, and in 2000 Aurora Gas was formed.
Aurora Gas is a niche player, Pfoff said, with its focus on Cook Inlet natural gas, “and we’re looking for gas that really has already been discovered, one way or another.”
When companies were exploring Cook Inlet for oil in the 1960s, they found a lot of gas, “sometimes they knew it and they tested it, sometimes they didn’t, they just blew right through it with heavy mud that invaded the zones,” he said. After all, they weren’t looking for gas.
Aurora focuses on what is known, Pfoff said: “Our whole niche is to use those logs and the geology and the well control and then some of the seismic that’s been shot since, and put together a puzzle to go back in and find low-risk opportunities to develop natural gas.”
Aurora found an industry equity partner, Tulsa, Okla.-based Kaiser Francis Oil Co., and since 2000 has invested more than $30 million in Cook Inlet.
Why was Kaiser Francis interested?
”They know this is a resource-rich basin that has not been fully developed and there’s a lot of technical opportunities to go out there and find additional hydrocarbons in the inlet,” Pfoff said. West side focus About 100,000 of Aurora’s 130,000 acre position is on the west side of Cook Inlet, Pfoff said, the majority, some 76,500 acres, in the Moquawkie area; 17,200 acres at Nicolai Creek and 7,400 acres at Long Lake. He said the company also has several “very promising prospect positions on the east side of the Cook Inlet as well.”
Aurora is the smallest of the six Cook Inlet producing companies, Pfoff said, and started production at Nicolai Creek, the company’s first acquisition after Aurora Gas was formed. The company reentered and recompleted three of the existing wells at Nicolai Creek, and drilled one new well. All are on production, he said, with a combined production of some 5 million cubic feet per day.
In the winter of 2002-03, Aurora shot 25-26 square miles of 3-D seismic on the west side, nine square miles at Nicolai Creek and almost 16 square miles at Moquawkie.
The acquisition of the Lone Creek gas field and the Moquawkie area property included one well head and some 50,000 acres around the well “that have additional opportunities,” Pfoff said. Infrastructure and a pipeline were put in, and the Lone Creek well is producing some 5 million cubic feet a day, although he said that production is “a little more demand driven” than at Nicolai Creek.
Aurora then reentered the Mobil Moquawkie No. 1 well, which tested at 7-8 million cubic feet a day.
Most recently, he said, Aurora formed the Three Mile Creek unit with partner Forest Oil. Work requirements for the exploration unit include seismic, which the company has already shot, and an exploration well next year. But, Pfoff said, they are looking at that seismic, and “if we like what we see, we’re hoping we might even get that well drilled this year.” Moquawkie gathering system being completed Aurora is “laying pipeline right now” at the Mobil Moquawkie reentry, and just wrapping up the 2004 seismic program. This year’s seismic, Pfoff said, is a “very aggressive program to try to identify several very promising prospects in a large area.” The company did 2-D, rather than 3-D, because “this is a very large aerial extent” with several prospects targeted, he said.
The company is also gearing up for its 2004 well work program, which includes one recompletion at Nicolai Creek where the company is going to “open up some additional zones and prove up some additional reserves.”
One new well will be drilled “at yet another field that was discovered looking for oil,” the Albert Kaloa gas field. Pfoff said there are two wells at that field, but they are not salvageable because of the way they were plugged and abandoned, “so we’re going to drill a new one, it’s a fairly shallow zone anyway, so we can do it with our equipment.”
The company will also drill what Pfoff called “a very exciting exploratory reentry.” Moving right along And what are the company’s plans for the future?
“We’re going to keep our butts on shore,” Pfoff said, commenting that he frequently gets calls from people wanting to sell Aurora opportunities offshore in Cook Inlet, some of which even come with platforms.
But, he said, Aurora plans to stay onshore, close to infrastructure: “We’re going to look for those shallow pockets of gas and we’re not going to be big risk takers. And that’s our business model.”
On the other hand, as the company works through its inventory of reentry candidates it will do “more exploratory type drilling.”
The Three Mile Creek unit is an example, he said. There are wells in the area, and the company is shooting seismic, “but it’s going to be much closer to what I would call a wildcat well than a simple developmental reentry…” A rig to fit drilling needs The big fields discovered in the 1960s are in decline, he said, and there is an opportunity for more gas development. “We see prices that are going to finally give us as producers the incentive that we need to go out there and make these kinds of investments.”
Part of that investment is Aurora Well Service, the Aurora company which brought a workover rig to Cook Inlet from Wyoming.
“These fields are not huge and we can’t afford to put full-blown drilling rigs on a 10 or 20 bcf reservoir and make it work,” Pfoff said.
Aurora Well Service’s rig was designed for reentry work, “it’s smaller, more portable … It’s a carrier-mounted unit and therefore less expensive.”
Aurora modified the rig to drill shallow wells, top to bottom, and while the rig has so far worked only for Aurora Gas, at some point it will be available to others. Pipelines will become an issue Pfoff said pipelines are “going to become an issue in Cook Inlet as more and more of these smaller fields” are developed and need to move production to market because some of the pipelines in Cook Inlet are privately owned. Those pipelines are “not common carriers, they’re not open access” and “being a common carrier is not a business that they want to be in.”
But if you look at a map of the pipelines in Cook Inlet, Pfoff said, “you just have to conclude that some of these lines are going to have to open up … to other companies that need to get gas from the west side of Cook Inlet over to the east side.”
It’s an issue Aurora is working on, he said. “We’re working through it, it’s not warfare or anything, it’s just a transition…”
Infrastructure is also an issue on the west side. There are roads, but they don’t connect to the state’s road system. “It seems like every project that we undertake, we’re having to deal with infrastructure. … Even though we’re targeting gas reserves and the development of gas reserves, in the process we end up upgrading the infrastructure system over them. In addition to doing well work, we’ve put in bridges, we’ve put in roads, we’ve put in power cables. I mean we’ve had to do all that as part of developing this remote area.” Royalty valuation a problem Pfoff said there is also a taxation issue for Cook Inlet natural gas producers, and that is the value of royalty gas.
“Royalty owners deserve a fair value for the product — for the gas or the oil — whatever is produced pursuant to the lease,” he said. “And I don’t begrudge them that. We want to pay a fair royalty value.”
But, he said, when he does the best he can to market his gas, and then the state or other royalty owner says the royalty has to be paid on a higher value than the price Pfoff got for the gas, “whose pocket does that come out of?”
“We’re starting to see tremendous diversity — variations in some of the gas contracts,” he said. Different contracts pay different prices for the gas, he said, “yet the royalty valuation methodology will oftentimes require you to pay on a weighted average of utility contract prices, even though the best deal you can get might be something lower than that.”
Pfoff said he thinks the state is willing to listen to discussions about this problem, and he thinks it can be worked out.
That still leaves another problem which makes Cook Inlet a high-cost environment, the lack of momentum: there aren’t enough companies exploring for natural gas in the basin.
“With the amount of activity that we have, it’s kind of on-demand: sometimes equipment has to be brought in from the Lower 48 or the North Slope, and it’s going to cost you more.”
Then, he said, there is the regulatory and permitting issue.
“We just need to figure out a better way.” Even though each permit may be for a good reason, “there needs to be one-stop shopping somewhere, some way to get through this process quicker than what it takes right now.”
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