Producers 2025: Amaroq gets royalty relief at Nicolai Creek

Decision buys company one year to figure out financing for development

Eric Lidji

for Petroleum News

Just as this edition of The Producers went to press, the Department of Natural Resources' Division of Oil and Gas granted royalty relief for the Amaroq Resources LLC-operated Nicolai Creek unit, although there is some unfinished paperwork that both the division and Amaroq will have to complete.

With the decision, the royalty rate on five leases at the west side Cook Inlet unit was reduced to 3% until cumulative gross revenues from the unit totals $25.3 million.

The royalty relief is a highly targeted effort with a specific goal in mind.

According to estimates from the division, the terms of the royalty reduction would likely extend the life of the Nicolai Creek unit by only one year. It would generate some 80 million cubic feet of natural gas for the region while reducing state revenue by $154,000.

The idea is to give Amaroq one year to secure the financing required to conduct a long-delayed development campaign at the unit. The two-well program would increase the life of the unit by four years. This would generate an estimated 1.9 billion cubic feet of gas, which would generate $523,000 in direct royalty revenues, according to the State.

In making the decision, the State also considered the immediate needs of the Southcentral Alaska utility market, which is eager for any and all natural gas supplies to meet demand.

Amaroq has been blunt in its recent assessments of Nicolai Creek. In its 2024 plan, the company wrote, "Nicolai Creek Unit has tremendous upside potential for conventional oil and gas, unconventional gas, and storage development. If the operator is successful in attracting the additional investment dollars to pursue any or all of these upsides, the field would likely remain in operation for years to come. The alternative will be to commence planning for field abandonment in 2-3 years' timeframe."

Despite that urgency, Amaroq was unable to secure financing for any drilling at Nicolai Creek. It also delayed installation of a booster compressor unit that would have connected the NCU No. 2 and NCU No. 11 wells. This connection would have allowed additional natural gas to be produced while maintaining existing production from NCU No. 9.

In its plan for 2025, Amaroq proposed a three-well program but said the work would depend on funding. The company described its fundraising efforts as "very active and ongoing."

Amaroq did not secure the needed funding and did not drill the wells.

The Producers went to print before Amaroq submitted its plan of development for 2026, and therefore it is unclear whether the company will pursue the same development plan it proposed for 2025 or whether it will revise the plan based on the royalty modification.

Under the original plan for 2025, Amaroq would have drilled the NCU No. 15 well "from the South Pad as a 'twin' to develop shallow reserves behind pipe in NCU No. 9 due to poor or no cement conditions at the target zones in the existing well," according to the company.

A Petrotechnical Resources of Alaska analysis from early 2024 found 1.2 billion cubic feet of P50 shallow natural gas reserves behind pipe at NCU No. 9.

The NCU No. 16 well would have been drilled from the north pad to drain some 2.8 Bcf of remaining P50 reserves associated with NCU No. 3.

The NCU No. 17 well would have been drilled from the NCU No. 13 pad and would have targeted 2.8 Bcf of P50 reserves.

Unit profile

NCU No. 2 and NCU No. 11 have produced intermittently in recent years. The NCU No. 3 and NCU No. 10 producers have been shut-in for several years.

By issuing the royalty relief, the state is trying to spur development drilling that would offset the losses of those two non-producing wells.

In recent years, Amaroq has considered different approaches. It has sometimes favored working over NCU No. 3 and NCU No. 10 and sometimes favored new drilling. A workover might be more affordable. A new well "could produce most or all of the remaining reserves," according to the company, but would require third party funding.

Recognizing the importance of those projects to the sustainability of the unit, the Division of Oil and Gas has required Amaroq in recent years to either work over NCU No. 3 or to work over/re-drill the NCU No. 10 well. The company leaned toward drilling instead of working over existing wells and asked the State to waive the requirements.

"Due to the fact that Amaroq's proposed drilling program for 2025 could develop significantly greater reserves of natural gas, possibly eliminate the need to workover NCU No. 3 and possibly result in a superior way to access the PUDs associated with NCU No. 10, Amaroq respectfully requests the division's concurrence that Amaroq's proposed drilling program for 2025 should replace, or at a minimum defer the imposed conditions."

History

Aurora Gas LLC acquired and revived the Nicolai Creek unit in 2000. A legally unrelated but similarly named company called Aurora Exploration LLC acquired the Nicolai Creek unit after Aurora Gas filed for bankruptcy protection in early 2018.

Aurora Exploration later became Amaroq Resources. Amaroq has converted NCU No. 1B to injection and temporarily brought NCU No. 10 back into production.

Nicolai Creek produced some 100 million cubic feet of natural gas in 2024, down from 102 Mmcf in 2023, according to the Alaska Oil and Gas Conservation Commission.

Deep oil potential

Amaroq acquired some 5,000 net acres of "deep rights" for oil and natural gas on the Kenai Peninsula and the west side of Cook Inlet from Apache Alaska Corp. in November 2021. The sale included access to proprietary 3D seismic over the Nicolai Creek unit.

In its 50th plan of development for 2024, Amaroq said it was prioritizing natural gas over oil at the leases. The project was not included in the 51st plan of development for 2025.