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Unocal looking for more gas in Cook Inlet Company doubles budget for Alaska, increasing Cook Inlet oil and gas investments, also taking strong acreage position in North Slope foothills By Kristen Nelson PNA Editor-in-Chief
Unocal is growing its Alaska business. The company has more than doubled its budget in the state for 2001, to $75 million from $34 million in 2000, and will be looking for additional growth opportunities in the future, says Charles Pierce, vice president of Unocal Alaska.
In Cook Inlet, some $30 million is for oil projects and $15 million for gas. An additional $10 million will be spent on Kenai gas exploration and some $18 million on North Slope interests operated by others. Unocal also spent $3 million on foothills leases.
“We’re looking to grow the business,” Pierce told PNA in a June 30 interview, and the current oil price “makes it very attractive, especially the Cook Inlet investments and the North Slope investments.”
Pierce said he anticipates the company’s 2002 budget will be a similar size, although where the money goes may be different.
“But that’s sort of based on oil prices staying where they’re at,” he said.
If prices do stay where they are, Unocal may try to find some more projects — put another $10 million or $20 million into Cook Inlet oil projects.
“And that would be fairly substantial for us to have a $50 million program in Cook Inlet,” Pierce said. Service company support and manpower could be the restraints in trying to substantially increase the company’s programs, Pierce said, “because the industry at large is really short of professionals right now because everyone’s ramping up their projects” and because the last few years have been kind of slow and “we haven’t added a lot of capacity.” Logistic, environmental, staffing challenges Pierce was named to his present position in September 2000, and said he has found both logistic and environmental challenges in Alaska.
“The environmental policies are very rigorous and those are challenges. But you have some very solid geologic conditions and we have a very good slate of projects to do, especially with high oil prices,” he said.
When the oil price drops, he said, the high-cost environment makes Alaska projects more difficult. Offshore facilities — such as the company’s platforms in Cook Inlet — are more expensive anywhere because of the logistics, “and we also have older facilities that require maintenance,” he said.
Human resources are also a concern. Unocal Alaska has 316 employees: 65 in Anchorage, 44 in Kenai and 207 on offshore and onshore facilities (platforms, Trading Bay and Swanson River). Pierce said the average age of Unocal Alaska’s offshore employees is 45. “So we are coming up on some retirements and the North Slope has got a similar type of demographic,” he said.
Pierce said it’s a challenge for the industry, not just Unocal, to find enough experienced people in Alaska to try to grow the industry here.
Asked if Unocal had enough rigs to do what it wants to do, Pierce said the company owns the rigs on its platforms. “What you have to have are rig crews to operate the rigs.” For onshore work, the company recently brought in a rig from Canada that is now working at the Swanson River field. Oil work from existing platforms The $30 million Unocal is investing in oil projects from its Cook Inlet platforms is up from about $15 million last year.
“Our net production out there is around 12,000 barrels of oil per day,” Pierce said, and this year, for the first time in about 10 years, Unocal expects to level out that production, rather than see it decline.
Unocal is doing a feasibility study now, he said, to see if that Cook Inlet oil investment can be increased next year. “And what increasing the investment means is doing more well projects.”
In the McArthur River field, Pierce said, the water injection program sometimes leaves pockets of oil, or new geologic work finds areas that haven’t been drilled yet.
“We just did a couple of projects targeting those that were very successful. Wells that came on over 1,500 to 2,000 barrels a day. Very big wells. And they’ll decline fairly quickly. But those are very good projects. And so that’s the kind of projects that we’re doing — re-drills, going after bypassed oil, going after new fault blocks. From the existing platforms.”
Current oil prices are driving this work, Pierce said. When the West Texas Intermediate oil price is above $20, “we can do a lot of projects. And I would say when it’s below $20, you really have to start scratching your head and being selective.” With the WTI price now at around $28, there are a lot of projects in Cook Inlet that Unocal can do, he said. Existing gas both onshore, offshore Unocal’s existing gas production, both onshore and offshore, goes to the Agrium fertilizer plant in Nikiski, formerly owned by Unocal.
Unocal is investing about $15 million this year in existing Cook Inlet gas, primarily in the Swanson River field and the Steelhead platform, which targets some gas near the McArthur River field. Those gas fields, Pierce said, are declining.
“We’re continuing to do projects out there and to find some accumulation and it continues to be a good business for us. But those are also fields that were found in the ‘60s and ‘70s. So that’s really based on selling gas to the fertilizer company.” Kuparuk, Endicott interests operated by others Unocal is investing about $18 million in the Phillips Alaska Inc.-operated Kuparuk River field, where Unocal has an interest of almost 5 percent, and at the BP Exploration (Alaska) Inc.-operated Endicott field, where Unocal has a 10 percent interest. The Kuparuk interest includes Unocal’s share of the Phillips-operated Meltwater development on the southwest corner of Kuparuk and the Palm discovery just west of Kuparuk, both of which are adding reserves for Unocal, Pierce said.
Cook Inlet oil and gas and the North Slope investment in fields operated by others are Unocal’s established, producing assets in Alaska, Pierce said. But the company’s future in the state may hinge on exploration prospects for gas — both on the Kenai Peninsula and in the foothills of the North Slope.
“I’m really excited about the gas projects — both the Kenai gas project and the foothills gas project. I think a big part of the future of our business here is going to be gas focused. Especially the Kenai gas, there’s existing infrastructure… The other stuff is longer term.” Unocal looking at gas potential Kenai gas exploration is a new project for Unocal, Pierce said, driven by the fact that the reserves-over-production ratio has dropped from 20 years to eight to nine years in the Cook Inlet basin.
“We believe there could be significant gas potential south of the Kenai field, down towards Ninilchik all the way down to Anchor Point… We have taken land positions down there, taken out some leases. We have also entered into a contract with Enstar to sell them gas with an initial commitment under the contract to start deliveries in 2004. And we are planning an exploration program that will start this year and next year,” Pierce said. Unocal has $10 million budgeted for that project.
Pierce said there are two incentives for gas exploration: The ratio of gas reserves to production in the Cook Inlet basin is lower. And Unocal has a gas supply contract with Enstar that is before the Regulatory Commission of Alaska for approval, with a price in the contract that makes it attractive for Unocal to do some exploration.
Unocal has some projects it will do based on the lower reserve level, Pierce said, “but if we get this Enstar contract, we’ll be a little more aggressive.”
While North Slope gas will provide the long-term solution for Cook Inlet supplies, “short term, there’s a lot more exploration to do in the Cook Inlet. Because no one has ever really targeted gas for an exploration program. All the gas was found looking for oil. So we’re targeting the gas. And we’ll see what happens.” Foothills also of gas interest Long-term gas — from the North Slope — is also something Unocal is pursuing. The company took 18 tracts in the state’s foothills oil and gas lease sale. The tracts are near the proposed highway gasline route, Pierce said, and in addition to gas prospects, some of the tracts have oil prospects.
Unocal will do more geologic work and evaluation in the area. “We haven’t committed to a drilling program yet or a seismic program,” Pierce said. Any oil discoveries could be developed now, but gas development couldn’t happen until a gas pipeline is built.
There is a lot of information available on the foothills tracts and seismic has been shot in the area. Unocal is looking at seismic it might purchase, and also considering whether it wants to shoot its own seismic. That decision, he said, has not yet been made.
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