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Buccaneer to drill at West Eagle State approves three-lease unit at the southern Kenai gas field, but requires Buccaneer to post two bonds to guarantee work Eric Lidji For Petroleum News
Following the recent formation of a unit at the onshore gas field, Buccaneer Energy Ltd. is permitting a summer exploration well at its West Eagle prospect in the southern Kenai.
A local subsidiary of the Australian independent, Buccaneer plans to use the Glacier No. 1 rig to drill the West Eagle No. 1 well some 20 miles east of Homer this summer to target a potential natural gas reservoir suggested by previous drilling and seismic evaluations in the region.
The permitting documents came one day after the Alaska Department of Natural Resources approved the formation of the West Eagle unit over three Buccaneer leases covering some 8,843 acres. Buccaneer originally requested a unit over nine leases covering some 46,395 acres in the area, but Division of Oil and Gas Director Bill Barron determined that “not all of the acreage Buccaneer proposes supports forming a unit.”
The six leases not included in the unit, as well as small portions of the three leases included in the unit, have now expired at the end of their primary term, retroactive to the end of September 2012. Of the three leases in the West Eagle unit, two were also set to expire in September 2012, but the third was not set to expire until February 2016.
The state approved the unit retroactive to Sept. 30, 2012.
Strict interpretation While the state has taken a strict interpretation of its unitization regulations in recent years, it formed the shrunken West Eagle unit even after acknowledging that the potential benefits of development, as far as the state is concerned, “should not differ significantly whether or not the leases are unitized” seeing as Buccaneer is the sole lessee in the area.
But, according to Barron, the unit was justified because the accompanying plan of exploration Buccaneer proposed for West Eagle “offers protections to the state’s economic interests.” The unit decision requires Buccaneer to post two $600,000 bonds within 30 days to backstop its work commitments. The state would return the first bond if Buccaneer spuds West Eagle No. 1 by Sept. 1, 2013, and would return both bonds of the company drills and tests, or drills and plugs and abandons, the West Eagle No. 1 well by Sept. 1, 2013. The well must target a shallow interval of the Tyonek formation at around 6,000 feet.
If Buccaneer fails to complete the well by the deadline, it would voluntarily terminate the unit and two of the leases would expire retroactive to the end of their primary term.
Buccaneer plans to drill West Eagle No. 1 on a 1.38-acre drilling pad to be constructed “within the footprint of an existing material site on public lands and operated by a local company,” and said the project would exclusively make use of existing road access.
The state is taking comments on the drilling plan through March 16.
A regional story The southern Kenai Peninsula saw considerable drilling during the early days of Cook Inlet exploration, but is only recently becoming a site for development activities.
Only two wells have been drilled in the vicinity of West Eagle.
Standard Oil Company of California drilled the Anchor River No. 1 well in December 1961 to a depth of 6,896 feet. The well found no oil, but “strong gas shows” associated with coal seams and “weak indications of gas” associated with the lower Beluga and Tyonek sands. In April 1970, Gulf Oil Co. drilled the South Caribou Hills Unit No. 1 well two miles northwest of Anchor River No. 1, reaching 10,091 feet. The well found no oil shows and only “weak indications of gas” associated with the Tyonek formation.
While “multiple” seismic surveys have been shot around West Eagle, the most recent was in 1981, all have been 2-D and “the data quality is generally poor.” Buccaneer recently reprocessed some 233 square miles of this older seismic that has “improved the interpretability of the data,” and has previously proposed a 3-D survey over the region.
In the broader region, Armstrong Cook Inlet sparked renewed interest in the southern Kenai Peninsula when it brought the North Fork unit online in 2011, following a gas discovery Standard Oil Company of California made 10 miles north of Homer in 1965.
In late 2012, Hilcorp Alaska brought the Red Pad at the Nikolaevsk unit into production, following up on a gas discovery Union Oil Company of California made there in 2004.
To the west, Buccaneer plans to use its Endeavour jack-up rig this spring to drill at the Cosmopolitan prospect off the coast of Anchor Point. Pennzoil discovered the oil field in 1967. ConocoPhillips and Pioneer Natural Resources explored the field in the 2000s.
State responds to comments The state received numerous comments concerned about the unit.
The primary concerns were environmental, particularly with regard to the protection of grazing lands, as well as potential sound, light and water pollution. The state said it included mitigation measures in the lease terms addressing those concerns and “may impose additional mitigation measures when Buccaneer proposes specific activities.”
It also noted that unitization, as an administrative issue, poses no threat to water quality, but that proposed development would come under the purview of several agencies.
Other comments questioned the safety of drilling operations, but the state said the Alaska Oil and Gas Conservation Commission is largely responsible for regulating safety.
“Several” comments questioned whether the state should form a unit over leases on the verge of expiring, but the state noted that existing regulations and case law allow it to retroactively form a unit if the company submits an application before leases expire.
Finally, several comments requested a public hearing on the unit, but Barron said the state met its public notice requirements and saw no reason to expand upon those terms.
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