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Providing coverage of Alaska and northern Canada's oil and gas industry
May 2018

Vol. 23, No.21 Week of May 27, 2018

AIX Energy planning compression for fall

Company expects Kenai Loop to continue meeting obligations for several months with current infrastructure; may revive KL 1-4 well

Eric Lidji

for Petroleum News

AIX Energy LLC believes it can meet its production obligations at its Kenai Loop natural gas field through the coming fall before it will need to install compression infrastructure.

“Extended flowing and shut-in data was used to update nodal analysis and systems models, resulting in a high level of confidence that under current market conditions compression could be deferred until the fall of 2018,” the company wrote in a recent plan of development for the onshore gas field located just northeast of the city of Kenai.

In the years since it acquired the Kenai Loop field from previous operator Buccaneer Energy Ltd. in late 2014, the Texas-based independent has met its commercial obligations without significant investments beyond those required for daily operations.

Some investment will become inevitable as the field ages. Average gas production at Kenai Loop peaked above 11 million cubic feet per day between October 2015 and January 2016, according to figures provided by the company. The field produced 2.827 billion cubic feet in the year ending March 31, 2018, down from 3.159 bcf in the year ending March 31, 2017, and down from 3.657 bcf in the year ending March 31, 2016.

AIX Energy publicly raised the inevitability of adding a compression system at Kenai Loop in its first plan of development, submitted to state authorities in May 2015. At the time, the company estimated that the field would need compression within 12 to 18 months, depending on the demand for near-term and non-firm gas sales. The company repeated the 12-to-18-month estimate in its second plan of development from early 2016.

In its third plan, from early 2017, AIX Energy pushed the estimated date of compression installation to this summer and said it would use flowing and shut-in data to assist with planning. Those efforts allowed the company to defer the project until as late as this fall.

Associated with the compression project is a proposal to connect the shut-in KL 1-4 production well into the existing system to increase both deliverability and redundancy.

Buccaneer drilled four wells during its initial development campaign at Kenai Loop. The field is currently producing from KL 1-1 and KL 1-3. The KL 1-2 is temporarily suspended and AIX Energy has expressed an interest in converting the well to disposal.

Connecting the KL 1-4 well into the system would improve operations by increasing deliverability from the field and creating a backup for the existing wells. The project could potentially increase overall recovery at Kenai Loop, according to the company. In the coming year, AIX Energy plans to perform a cost-benefit analysis of the interconnection project and a related project to recomplete the KL 1-1 and KL 1-3 wells.

The biggest infrastructure project at Kenai Loop over the past year was the decommissioning of a second, unused drilling pad in June 2017. The decommissioning allowed the company to end a surface lease with the Alaska Mental Health Trust.

Gas sales

These projects come at a moment of transition.

AIX Energy is entering the final months of the gas sales agreement it inherited from Buccaneer through its acquisition of the Kenai Loop field. A new gas sales agreement with Enstar Natural Gas Co. goes into effect during the third quarter of this year.

According to terms provided by the companies, the gas sales agreement includes a provision allowing AIX Energy to either increase or decrease production in the third year.

AIX Energy would provide a firm supply of 1.370 bcf between July 1, 2018, and March 31, 2019. The volume would increase to 1.464 bcf between April 1, 2019, and March 31, 2020. Between April 1, 2020 and March 31, 2021, the volume would either decrease to 1.095 bcf or would increase to 1.825 bcf. AIX Energy has until Sept. 1, 2019, to inform Enstar about the volume it intends to deliver in the third year of the contract.






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