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Producers 2013: Armstrong: southernmost producer The Denver independent and its four partners are working to increase gas production at their signature Cook Inlet development Eric Lidji For Petroleum News
When Armstrong Oil and Gas Inc. acquired the North Fork unit in 2007, the independent was better known for facilitating development than bringing its assets into production.
In the early 2000s, the small Denver-based company brought Pioneer Natural Resources Inc., Kerr-McGee Corp. and Eni S.p.A. to Alaska. Those partnerships led to the Oooguruk and Nikaitchuq units, the newest oil fields in production on the North Slope.
In 2007, though, through its affiliate Armstrong Cook Inlet LLC, the company planned to pursue an aggressive development plan at the onshore gas field in the southern Kenai Peninsula, and ultimately succeeded by bringing the field into production in early 2011.
Now, Armstrong and its partners are working to increase production.
The North Fork field produced some 7 million cubic feet per day from five wells in July 2013, up from nearly 4 mmcf per day from four wells in July 2012, according to averages gleaned from monthly Alaska Oil and Gas Conservation Commission figures. To accommodate seasonal demand, Armstrong has typically produced more in the winter. The field produced more than 11 mmcf per day from five wells in January 2013, up from 6.5 mmcf per day from three wells in January 2012, according to the AOGCC.
From the start, Armstrong said North Fork would be first of many deals. “We are looking to get active in the Cook Inlet,” President Bill Armstrong told Petroleum News in 2007. “We think it’s a good time to explore for gas in the Cook Inlet. … We’re looking forward to doing more deals. … Assuming we’re successful, we’ll be doing what was typical for us on the North Slope — a combination of wildcat and development drilling.”
Known, but undeveloped The North Fork unit was a known prospect when Armstrong arrived.
Standard Oil of California drilled the North Fork 41-35 discovery well in 1965 while looking for oil, but the low value of gas made development a hard sell (especially because it sat in the southern reaches of the Kenai Peninsula, far from Anchorage).
A variety of companies took their turn at the field starting in the late 1990s, but none brought the field into development. Armstrong acquired the prospect from Gas-Pro LLC and brought on four partners, all small independents: GMT Exploration Co., Jonah Gas Co. LLC, Nerd Gas Co. LLC and Dale Resources Alaska LLC.
The partners drilled the North Fork 34-26 well in June and July 2008 to 9,000 feet using the Aurora Well Services AWS-1 workover rig, which was modified to accommodate the depth of the well and also to make the rig quieter — a consideration for nearby residents.
The North Fork geology contains lenticular sands, or layers of sand and mud. Armstrong started drilling through the layers, looking for productive sections within the sandstones.
In September 2008, Armstrong Vice President of Land and Business Development Ed Kerr told Petroleum News he was “cautiously optimistic” about the results. “I am 100 percent positive we have a gas well — in any other part of the world that’s what I would say, but we still have to get a pipeline to it,” he said. Speaking before the House Resources Committee in March 2009, Kerr said Armstrong was “very comfortable” that the prospect held between 7.5 billion and 12.5 billion cubic feet of gas reserves and said it was “realistic” the prospect could hold between 20 billion and 60 billion cubic feet.
“There is some potential that it could be substantially larger than that,” Kerr said.
New thoughts about pricing But, Kerr added, Armstrong needed a price between $7 and $10 per thousand cubic feet to make the prospect work — a shock in the waning days of cheap Cook Inlet supplies.
In mid-2009, Enstar signed a supply agreement with Anchor Point Energy LLC, a joint venture created by the five North Fork partners. The deal required Anchor Point Energy to provide Enstar with 1.2 billion cubic feet per year up to a total of 10 bcf.
The price was indexed to quarterly average gas futures on the New York Mercantile Exchange, with a floor price of $6.85 per mcf and a ceiling price of $9.90 per mcf, both adjusted for inflation. Coming amid debates over how to price Cook Inlet gas, it was unclear how the Regulatory Commission of Alaska would handle the contract, but the RCA approved it less than two months later. The precedent helped make Nymex futures a standard pricing mechanism for contracts brought to the RCA in the years since.
Additional drilling The contract required Armstrong to drill at least two more North Fork wells.
Toward the end of 2009, Armstrong hired PGS Onshore to shoot a 3-D seismic campaign over some 20 square miles around North Fork to help guide future drilling decisions.
In the summer of 2010, Armstrong took on a full plate.
First, Armstrong re-entered the original NFU No. 41-35 well to re-perforate the two sands Socal tested back in 1965. Then, Armstrong drilled the 11,700-foot NFU No. 14-25 directional well bearing eastward to a total vertical depth of 10,311 feet into the Beluga formation. Finally, the company drilled the 12,070-foot NFU No. 32-35 directional well bearing south to a total vertical depth of 11,266 feet, also into the Beluga formation.
Armstrong brought the field online in late March 2011. Since then, Armstrong has been producing from six Tyonek sandstones. The original NFU No. 41-35 well has been the most productive well at the unit and the NFU No. 14-25 has been the least productive.
Limited unit expansion approved A year later, in March 2012, Armstrong asked the Division of Oil and Gas to expand the unit to reincorporate the former federal acreage included in earlier iterations of the unit.
Originally, the North Fork unit was a federally administered unit containing both state and federal acreage, but previous officials contracted it in 1971 to include just the state acreage, a 640-acre gas pool. With the former federal acreage having since been transferred to the state, Armstrong wanted the unit to be expanded to its early contours.
The proposed expansion would have brought the unit to 4,801 acres over six state and three Cook Inlet Region Inc. leases. The state only agreed to add 2,903 acres around the western side of the unit. Several un-unitized Armstrong leases have since expired.
The state also agreed to expand the North Fork Gas Pool No. 1 participating area to 800 acres, from 640 acres. Armstrong had asked the state to expand it to 2,600 acres.
Following the approvals, Armstrong permitted four wells — NFU Nos. 23-25, 33-35, 42-35 and 22-35 — but only planned on drilling two.
In late 2012 and early 2013, Armstrong drilled NFU No. 22-35 and NFU No. 23-25. The 11,017-foot NFU No. 22-35 well bore south to a total vertical depth of 9,800 feet and the 10,785-foot NFU No. 23-25 well bore eastward to a total vertical depth of 9621 feet.
Those two wells fell under the 47th Plan of Development for the unit. Under the same plan, Armstrong installed a compression unit at North Fork in November 2012, began producing from a new zone at the NFU No. 34-26 well and brought gas to Nikolaevsk.
Under the 48th Plan of Development in place for 2013, Armstrong tested the NFU No. 23-25 and NFU No. 22-35 wells and continued to monitor its existing production wells.
A 49th Plan of Development is due at the end of 2013.
Elusive oil Early on, Armstrong also expressed an interest in looking for oil at North Fork.
In mid-2010, the company filed an oil discharge prevention and contingency plan with the Alaska Department of Environmental Conservation, a necessity for any oil exploration, and announced plans to test the Hemlock formation sometime in 2011.
The NFU No. 41-35 well had tested minor amounts of oil in the Hemlock, but when Armstrong extended one of its gas wells to test the formation, it came up empty handed.
Gas for Homer For decades, the southern Kenai lagged behind the rest of the Southcentral region.
Anchorage, the Mat-Su and the northern Kenai enjoyed the cost effectiveness of natural gas, but the small communities around Homer continued to burn expensive fuel oil.
A trio of known southern Kenai prospects promised resources to extend the transmission grid from its prior terminus at Happy Valley. They were North Fork, the Nikolaevsk unit to the northeast and the Cosmopolitan prospect off the coast of Anchor Point. In each case the operators wanted infrastructure to improve the economics of their prospects but Enstar Natural Gas Co. wanted sustained gas production to justify building new pipelines.
The development of North Fork ended the logjam, but discussions continued about whether to take the gas north to the existing system or south toward Homer.
Eventually, the gas went both ways.
Under the 2009 contract, Anchor Point Energy built the 7.4-mile North Fork Pipeline from the North Fork unit and Enstar built the 21-mile South Peninsula Pipeline from the terminus of the existing Kenai Kachemak Pipeline. The pipelines met in Anchor Point.
A series of regulatory hurdles — some expected, and some the result of the small private companies worried about publically disclosing their finances — delayed the project, but the pipelines allowed Armstrong to deliver North Fork into the existing grid. Over several years of legislative wrangling and piecemeal funding, the state eventually helped pay for a trunk line into Homer, an extension to Kachemak City and a short line to Nikolaevsk.
Now, the southern Kenai Peninsula is finally getting natural gas.
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