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Producers magazine preview: Amaroq keeps Nicolai Creek alive
Aging field continues to produce 133 million cubic feet per year and could have lasting life with additional investment Eric Lidji for Petroleum News
Being a producer doesn’t always mean drilling, especially in a legacy basin.
The small local independent Amaroq Resources LLC has managed to keep the Nicolai Creek unit alive in recent years, despite marginal economics, without drilling new wells.
First came a successful conversion project to address water-handling issues at the onshore natural gas field on the west side of the Cook Inlet basin. Then came a desirable verdict in a recent legal case over its bonding requirements, saving the company millions.
More maintenance and administrative projects like those exist, if the company chooses to pursue them. But the long-term future of the unit probably lies in drilling for deep oil.
History Union Oil Company of California oversaw startup in 1968 and operated the unit through 1977. With declining production, the unit went offline for decades. The small, local independent Aurora Gas LLC revived the west side Cook Inlet property in 2000 and undertook additional drilling and fieldwork at the property for nearly two decades.
Aurora Gas filed for bankruptcy protection in early 2018. As part of the proceedings, a similarly named but legally unrelated company called Aurora Exploration LLC acquired the Nicolai Creek unit. Aurora Exploration later changed its name to Amaroq Resources.
Unocal and Aurora Gas drilled 11 wells at the Nicolai Creek unit. Today, five of those wells have been abandoned - NCU No. 4, No. 5, No. 6, No. 13 and No. 14 - and another five are capable of producing - NCU No. 2, No. 3, No. 9, No. 10 and No. 11.
In a plan of development from 2020, Amaroq said that the Nicolai Creek unit would become uneconomic within a few months without several important investments.
One of those investments was finding a better disposal method for produced water. The company ultimately converted the depleted NCU No. 1B well to a water disposal well.
The project was undertaken in mid-2020 and completed by the end of the year and came online in mid-2021, following weather-related delays. It now handles 250 barrels per day.
Production Of the five wells capable of production, only a few are producing consistently.
The Nicolai Creek unit produced 133 million cubic feet of natural gas in the year ending Aug. 31, 2021, up 43% over the previous year, according to Amaroq. The unit produced 45.7 million cubic feet of natural gas in the first six months of this year, down from 67.8 million cubic feet in the first six months of 2021, according to the AOGGC.
The decline came largely from lower production at the NCU No. 9 well, which currently accounts for the majority of unit production, and to a lesser extent at NCU No. 11. NCU No. 11 has been perennially shut-in during recent years due to low reservoir pressure.
The remaining production wells are all candidates for investment, to varying degrees. The leading candidate at the moment is NCU No. 10, which currently produces sporadically.
The well was returned to production in May 2021 after some time offline. It produced nearly 4.8 million cubic feet through October 2021 before coming offline again. The well was returned to production in June 2022 at a rate roughly matching its May 2021 re-start.
The complication is water production. The well produced more than 17,000 barrels in 2021, with gas-to-water ratios increasing notably during early months of production.
“Once the well has stabilized and water production can be accurately projected, Amaroq will evaluate the economics associated with a gravel pack and/or rig workover during 2022, which would facilitate production at much higher rates,” Amaroq wrote in its plan.
Another possible investment opportunity is NCU No. 3, which has been shut-in for some time due to “formation sand and silt plugging the tubing,” according to Amaroq. The company is proposing a coiled tubing cleanout but has not yet sanctioned that project.
Bonding Earlier this year, Amaroq won an important court case against the Alaska Oil and Gas Conservation Commission over bonding requirements on its Nicolai Creek wells.
The AOGCC requires operators to post large monetary bonds to ensure that funding is available to eventually plug and abandoned all oil and natural wells drilled in the state.
The state agency increased the bonding amount in 2019. Under the previous schedule, companies had to post $100,000 for a single well and $200,000 for multiple wells. The new schedule instituted a formula based on the number of wells a company maintained: companies with one to five wells would pay $400,000 per well; companies with six to 20 wells would pay $2 million, plus an additional $250,000 per well for each well above five; companies with 21 to 40 wells would pay $6 million; companies with 41 to 100 wells would pay $10 million; and companies with 101 to 1,000 wells would pay $20 million.
Under that formula, Amaroq would have had to pay $2.25 million to cover the six wells at the Nicolai Creek unit. Amaroq appealed, based on the going rate to plug and abandon wells in the area. The AOGCC agreed in 2020 to lower the bonding rate to $900,000, but Amaroq appealed to state superior court, citing an earlier 2017 agreement at $200,000.
The judge ultimately sided with Amaroq, noting that the 2017 agreement contained a clause that made it difficult for the AOGCC to change the rate at a point in the future.
Amaroq Resources LLC is also chasing one of the big prizes of Cook Inlet.
For many years, industry watchers have discussed and debated the potential of deeper horizons within the basin, leading to various exploration proposals and activities.
In its most recent plan of development, filed with state officials in September 2021, Amaroq announced plans to acquire 100% working interest in “the ‘deep rights’ below certain geologic markers in Nicolai Creek Unit.” A previous operator at the west side Cook Inlet natural gas field had previously sold these deeper rights to a third party.
That sale closed in November 2021 when Amaroq acquired some 5,000 net acres of “deep rights” on the Kenai Peninsula and the west side of Cook Inlet, including deep oil and natural gas rights underlying the Nicolai Creek unit, from Apache Alaska Corp.
The zones included in the purchase are below the Upper Tyonek formation underlying onshore acreage. The sale granted Amaroq access to proprietary 3D seismic data commission by Apache over the Nicolai Creek unit on the west side of Cook Inlet.
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