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Forest talks Alaska gas Resource, Lower 48 pricing, excess of demand over supply motivation to invest Alan Bailey Petroleum News
At Forest Oil Corp.’s 2006 analysts’ conference on March 16 company CEO Craig Clark confirmed an Alaska strategy that he had outlined to shareholders in November 2005: Forest wants to expand its Alaska onshore natural gas production. He told the analysts that his company sees Cook Inlet onshore natural gas as one of its “up and comer” areas where there is current production, but where further exploration is needed. Alaska’s Susitna Valley fits within the company’s pure exploration areas, termed “flyers,” Clark said.
“The critical asset to this (Alaska) business unit is … gas acreage and our inability anywhere else in the world to replicate those kind of acreage sizes and have a market that was there and ready to go into,” Craig said.
Forest’s senior vice president for Alaska, Leonard Gurule, described the company’s Alaska strategy in some detail. Gurule touched briefly on the company’s small working interests in the Prudhoe Bay unit and Point Thomson field, on the North Slope, but spoke mainly about the company’s activities in Southcentral Alaska. Clark described Forest’s North Slope investments as “a seat at the table for throughput.” Cook Inlet oil In Cook Inlet, Forest holds a 47 percent interest in two non-operated oil fields, Trading Bay and McArthur River, Gurule said. These fields produce from five 1960’s vintage, offshore platforms that require lots of equipment and are manpower intensive, he said.
The company operates and has a 100 percent working interest in the Redoubt Shoal and West McArthur River oil fields.
Gurule stressed the efficiency with which Forest operates its one offshore platform at Redoubt Shoal. There is a permanent crew of just two people on the platform — a day man and a night man, he said. Technicians go out to the platform occasionally to check the instrumentation and equipment.
And the company has been applying waterflood in this field.
“At the Redoubt Shoal unit we installed a pilot waterflood last year,” Gurule said. “That waterflood seems to have stabilized production and we’re looking at continuing with that in the future.”
On the other hand, “a pretty strong natural aquifer” supports production from the West McArthur River field, he said.
“We are looking at that to see whether we can enhance the recovery by having some additional water injection in that field,” he said.
Forest also owns 40 percent of the Cook Inlet Pipeline Co., the owner of the Cook Inlet pipeline and Drift River marine terminal that export liquids from oilfields on the west side of the Cook Inlet. Natural gas Although Forest is continuing its Cook Inlet oil production, the company really sees onshore natural gas as a growth opportunity in the Cook Inlet region.
“This is the area that we’re focusing in on,” Gurule said. “This refocus is really the result of a strategic business study that we did a little over 18 months ago.”
That study identified three reasons for a strategy of looking for oil and gas onshore, he said.
“The first reason was that the cycle times from exploration to first production were much shorter than for what we were looking for offshore,” he said. “The second reason was that the gas market was going from an oversupplied market to an undersupplied market … The third reason was that land and competition onshore on the northwest side of the Cook Inlet is relative light — you can get access to land and it’s not extremely expensive.”
The results of this new strategy have been bearing fruit. The company now operates the West Foreland and Kustatan gas fields, and has a 30 percent working interest in the Three Mile Creek gas field, all on the west side of the inlet, Gurule said.
The West Foreland No. 1 well tested at 3.8 million cubic feet per day and the West Foreland No. 2 well tested from a combined rate on two different zones at 15 million cubic feet per day, Gurule said. The Kustatan No. 1 well tested at 1.8 million cubic feet per day, he said.
And Forest’s gross gas production has increased from zero to 15 million cubic feet of gas per day over the past 18 months, he said.
In addition, most of the opportunities that the company has discovered onshore in the last year and a half have been gas, Gurule said.
Exploration success has resulted in part from exhaustive geologic studies of the west side of the inlet. For example, Forest has looked at information from all of the wells that have been previously drilled in the area.
“We’ve mapped all of the horizons that we see in the Cook Inlet … across the west side of the Cook Inlet,” Gurule said.
Forest has also acquired about 800 miles of seismic and reprocessed it, Gurule said.
“Out of that reprocessing and interpretation what we found was about 27 leads and prospects,” he said. “Those leads and prospects are basically why we’re holding the acreage that we have here.”
Major acreage change In fact the company’s new strategy and subsequent investigations have resulted in a significant shift in its acreage position — the company has followed a policy of only holding onshore acreage with leads and prospects.
“When we started 18 months ago we had an onshore acreage position that was about 30,000 acres,” Gurule said. “Today we have an onshore acreage position that’s 101,000 (acres) — 96 percent of that’s undeveloped.”
That’s a turnover in acreage of about 98 percent he said.
“We basically got rid of everything we had and acquired almost all new land onshore,” Gurule said.
In addition to holding its re-jigged acreage position, Forest is shooting new seismic this year.
“We’re shooting about 100 miles of 2D seismic … to confirm the leads and prospects that we have into a drillable or mature status,” Gurule said.
And success in the company’s drilling in the West Foreland area has resulted in the acquisition of some new acreage and a focused exploration program there.
“Based on that success we picked up at the end of ’05 … another 9,700 acres … on the West Forelands Peninsula that we think will yield some similar results to what we’ve had with those three wells there,” Gurule said. “Two months later and currently we’re shooting a 25-square mile 3D seismic on that acreage.” The Susitna Valley Forest holds two exploration license areas in the Susitna Valley, north of the Cook Inlet.
“The continuous acreage is about 857,000 acres: North to south that’s 44 miles; east to west that’s 34 miles,” Gurule said.
These two blocks form the largest exploration blocks in Alaska, he said.
Gurule talked about two old exploration wells, the Kahiltna Unit No. 1 and the Trail River Unit No. 1, in the area of the exploration licenses. Those wells found alternating layers of coal and sand, he said. That is important because it indicates a similar geologic situation to Cook Inlet, where coals in an appropriate temperature window have generated biogenic gas. And that gas generation has resulted in some large gas fields, Gurule said, citing Cook Inlet fields such as the 4,500 acres and more than 2 trillion-cubic feet Kenai field.
The Susitna basin contains multiple stacked pay zones, as in the Cook Inlet basin, Gurule said.
“Those sediments (in the Susitna basin) from those two wells are buried within this window of biogenic gas generation,” he said. “… From a technical standpoint there’s no doubt in my mind that biogenic gas has been generated in the Susitna basin. The only question is where did it go and can we find it.”
There is about 700 miles of old 2D seismic on the Forest acreage.
“Only about half of that (seismic) we thought was any good,” Gurule said. “We took that half, had it reprocessed and we’ve looked at that and mapped some structures,” Gurule said.
Forest has identified “some pretty big structures” and has identified four prospects in the southern block and another three prospects in the northern block, Gurule said. The structures are asymmetric, generally with three-way dip closures, bounded by faults on either side.
“Today we’re out there shooting an additional 125 miles of 2D seismic (in the southern block). … We’re shooting that seismic to firm up to a drill hole site,” Gurule said.
But Forest wants to find a partner for the Susitna Valley exploration.
“We don’t plan to do this alone,” Gurule said. “We’re talking to a couple of companies.” Southcentral gas potential Most of the current Cook Inlet oil and gas fields date back to exploration done in the 1960s. And Gurule sees Forest’s gas discoveries on the west side of Cook Inlet as supporting a view that there is significant resource potential in medium sized fields that the 1960s exploration failed to find. That earlier exploration focused on searching for oil in large structures and found some large gas fields in the process. But there is a statistical gap in the mid-range of the discovered gas field sizes — Forest’s new discoveries fit right into that gap, Gurule said.
But the discovery of natural gas in the 1960s led to a gas glut in the Cook Inlet area and the construction of LNG and fertilizer export plants on the Kenai Peninsula.
“The (gas) market was oversupplied. There wasn’t an interest in gas. Gas was bypass play … because it was a byproduct of oil exploration,” Gurule said.
That situation has completely changed. The Kenai Peninsula industrial plants were expanded after construction; the Cook Inlet natural gas reserves are running low. Today, the natural gas reserves-to-production ratio in the Cook Inlet region is six, compared with a gas reserves-to-production ratio of 50 immediately after the construction of the industrial plants, Gurule said.
“The market’s in transition from an oversupply to an undersupply,” he said.
Natural gas prices reflect that transition. Historically gas prices in the Cook Inlet have been lower than in the Lower 48. However, a new gas supply contract before the Regulatory Commission of Alaska is based on Henry Hub Lower 48 prices, Gurule said.
Gurule also cited a Cook Inlet natural gas supply and demand chart from a 2004 U.S. Department of Energy report. That chart indicated that gas demand would outstrip supply in 2007, that there would be curtailment of gas use by industrial consumers and that by 2012 supply would not meet commercial and residential demand. Commercial and residential demand has been growing at between 2 percent and 4 percent per year, Gurule said.
“Supply won’t be able to fill that demand — there will be a large need for gas supply in the Southcentral Alaska market,” he said.
And Gurule said that, with Forest’s acreage position and ability to operate at low cost, the company is in a particularly strong position to help meet those future supply needs. In particular he sees the company’s workforce, including a cadre of “oil and gas finders,” as a key asset in progressing the company’s Alaska agenda.
“We’re well positioned … because we have quality people that have a proven track record,” Gurule said.
Editor’s note: See related story about Escopeta’s jack-up rig in this issue, which includes information on Forest Oil’s offshore Corsair prospect.
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