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THE EXPLORERS 2005: Marathon keeps focus on new Inlet gas The company has brought new wells on line and plans to start the Kasilof field by end of 2006 Alan Bailey Petroleum News
Marathon Oil is forging ahead with onshore developments around Cook Inlet and continues to focus on natural gas rather than oil. The company is pioneering three new gas fields on the Kenai Peninsula.
“Marathon will continue to have significant development activities at (new fields) Ninilchik, Kasilof, and West Fork,” John Barnes, Marathon’s Alaska business unit leader, told Petroleum News.
Marathon’s predecessor Ohio Oil Co. purchased its first leases on the Kenai Peninsula in 1954. Marathon participated in the discovery of the Kenai gas field in 1959 and discoveries at Trading Bay and McArthur River in 1965. With its key production fields — Beaver Creek, Cannery Loop, Kenai, McArthur River, Wolf Lake and Ninilchik — Marathon has become the largest supplier of natural gas to Southcentral Alaska utilities Enstar Natural Gas Co. and Chugach Electric Association. The company is a major supplier to the LNG plant, the fertilizer plant and the refinery at Nikiski on the Kenai Peninsula.
“Marathon will continue to actively pursue additional development activities in our larger existing fields,” Barnes said. The primary emphasis remains on the Kenai, Beaver Creek and Cannery Loop Fields. Between these three fields, and including Ninilchik, Marathon expects to drill up to a dozen wells this year.”
That should continue to demonstrate that Marathon is the most active player in the Cook Inlet, Barnes said. Kasilof moving ahead Marathon’s newest gas field, Kasilof, looks set to move into production — the company discovered gas at Kasilof in early 2004.
“Marathon is working towards first production from the Kasilof discovery. We anticipate that first production to be on stream in December of 2006,” Barnes said. “The discovery will require a 4.5 mile pipeline from the field tying into the Kenai Kachemak Pipeline.”
Exploration at Kasilof involved drilling a 17,000-foot extended reach well from onshore.
“That’s probably the most ambitious well we’ve drilled in several years,” Barnes said in November 2004.
According to Marathon’s plan of exploration for the Kasilof unit the company will gather 3-D seismic in the unit in 2007, after the field goes into production.
Meantime West Fork, another new field for Marathon, went into production in August 2005. Gas was discovered at West Fork, near Sterling on the Kenai Peninsula, back in 1960 — Cook Inlet Region Inc. produced from the field between 1978 and the early 1990s. But Marathon drilled into a deeper extension or discovery in the field, Ben Schoffmann, Marathon operations superintendent for Marathon’s Alaska asset team, told Petroleum News in March 2005.
“We perforated five sands in the Tyonek,” Schoffmann said.
In September Barnes said that flow rates at West Fork have gone as high as 6 mmcf per day and that the company is continuing to stabilize production.
“Importantly, this discovery and new production were accomplished through the application of 3D seismic technology, which has enabled the company to breathe new life into an older field,” Barnes said. “West Fork is a good example of the kind of development drilling that is necessary to assess and fully realize the resource potential of Southcentral Alaska.”
In early 2002 Marathon and Unocal (purchased by Chevron in 2005) announced the discovery of the Ninilchik gas field on the west side of the Kenai Peninsula; Marathon operates the field. To tie Ninilchik gas into the Kenai Peninsula gas pipeline system, Marathon and Unocal formed Kenai Kachemak Pipeline LLC and built a pipeline running from Ninilchik to the nearest tie-in point. Gas began moving through that line Sept. 2, 2003.
“Currently at Ninilchik the good news is that we are producing just over 40 mmscf a day from eight wells,” Barnes said.
In summer 2005 Marathon tested two new wells at Ninilchik but the company has not yet released the test results.
In addition to continuing exploration and development for additional gas supplies, Barnes sees gas storage as one of the company’s most exciting opportunities in the next six to 12 months. Gas storage involves placing excess gas into field reservoirs during periods of low demand, so that this gas can later be retrieved during periods of high demand — in recent years the dwindling supplies of gas in the Cook Inlet area have struggled to meet peak winter demand in the area.
Marathon is working with the Alaska Department of Natural Resources on a gas storage lease for the Kenai gas field. The company has submitted permit applications to the Alaska Oil and Gas Conservation Commission and DNR.
“It’s become evident over the last several years that storage should play a key role in resolving the Cook Inlet natural gas needs,” Barnes said. “Several small projects are either active or proposed. Marathon is working towards a larger storage project in the Kenai gas field.”
Barnes said that the Kenai gas field has the capacity to support annual injection and withdrawals of approximately 10 bcf at a rate of 60 mmcf per day. Marathon currently envisages storing its own gas in the field but doesn’t discount providing gas storage services for other gas users at some time in the future. Pipeline progress Marathon has ownership in more than 118 miles of major natural gas lines serving the Cook Inlet gas market. But there has been recent controversy regarding gas pipeline access for third party shippers in the area, particularly in relation to the private Cook Inlet Gas Gathering System, or CIGGS, that Marathon and Chevron jointly own.
Since early 2004 Agrium, the owner of the Nikiski fertilizer plant, has filed two petitions with the Regulatory Commission of Alaska to regulate CIGGS. The commission dismissed Agrium’s first petition but the second petition, filed in October 2004, remains open. Agrium argued that the private operation of CIGGS was an obstacle to new industrial gas supplies to Nikiski. As a result of gas supply problems the Nikiski fertilizer plant is under threat of closure.
Marathon has in the past said that commercial agreements present the simplest way of enabling new gas shippers to use CIGGS. The company has said that millions of dollars of expenditure would be required to install the metering and control facilities needed to convert CIGGS into a regulated line. And Marathon has also said that major costs and delays resulting from the regulatory process for the Kenai-Kachemak pipeline on the east side of the Inlet demonstrate that regulation is less efficient than commercial agreement.
On May 26 2005 Marathon, Unocal, Agrium, the Cook Inlet gas producers, Enstar Natural Gas Co. and the state of Alaska entered mediated negotiations to resolve the CIGGS issues. Towards the end of June the parties to the dispute filed an agreement in principle and on Sept. 27 they filed a settlement agreement with the Regulatory Commission of Alaska. (See On Deadline section.)
The mediated agreement involves operating some of the CIGGS capacity for the regulated common carriage of gas but accommodates the issues involved in opening the line for third part shipping.
“The needs of the producers, shippers, consumers and the pipelines must all be balanced in a way which generates the greatest overall public benefit,” Barnes said in July.
Stable deliverability In recent years people have become increasingly concerned about the demand for Cook Inlet gas exceeding the available supply. But Barnes sees recent stable deliverability of gas as evidence of hard work by the Cook Inlet producers and of the efforts by the Alaska Department of Natural Resources to stimulate gas exploration and production. Marathon estimates that overall deliverability for the Cook Inlet has stabilized at around 700 mmscf per day over the last two years. And gas reserves have also remained fairly stable.
“If you look at the state of Alaska DNR annual reports, Cook Inlet gas reserves increased from 2032.8 bcf for the year end 2003 to 2087.5 bcf for 2004,” Barnes said. “That also more than covered the production for the year … that’s the first time in quite a while that reserves have been replaced in the Cook Inlet.”
However, Barnes cautioned against thinking that there’s now a solution to the Cook Inlet gas supply problems.
“By no means does this good news show that the Cook Inlet supply and demand situation is resolved,” he said
Companies need to drill more wells, he said. In fact Barnes thinks that current activity levels in the Cook Inlet still fall short of what’s required to minimize costs and encourage the use of new tools and technology.
“You don’t really see a very sustained industry there,” he said. “The service and support industry might be just short of critical mass.”
And Barnes still sees the permitting process as complex and difficult.
“I haven’t really seen anything that would tell me the needle’s moved yet,” he said. “A significant issue is that you have to deal with multiple agencies — state, federal, local … it’s hard to get coordination between agencies.”
Better economics But Barnes sees market forces moving Cook Inlet gas prices toward an equilibrium that’s based on world market conditions. There’s market demand and the price signals are reflecting a supply/demand balance, he said.
“That ought to be an encouragement for producers — the rest of it is the hard work of going out and drilling wells,” Barnes said. “… there is no more (legacy) cheap gas in the Cook Inlet.”
And the good news is that there have been several operators drilling new wells around the inlet, he said.
“Marathon’s belief is that, with a good, fair, level playing field and market, the Cook Inlet is a good place to do business,” Barnes said.
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