|
Forest Oil spins off Alaska assets
Kay Cashman Petroleum News
Denver-based Forest Oil Corp. says it’s transferring the majority of its Cook Inlet area Alaska assets to a new subsidiary, Forest Alaska Operating LLC (Alaska), per a Nov. 2 press release.
In the release Forest President and CEO Craig Clark said the spinoff, effective Oct. 31, allows the company to “segregate the financial requirements of a long-lived oil asset in the middle years of its productive life from the financial requirements” of the company’s other North American assets, “which are in various stages of exploitation and necessarily more capital intensive.”
Forest Alaska, the company said, would enter into a services agreement with Forest Oil to operate its Alaska assets, which means Alaska employees of Forest will remain with the parent company, as will contractor agreements.
“Alaska intends to attempt to place $375 million of term loan financing to fund a $350 million distribution” to Forest Oil that will provide initial working capital for its operations, Forest Oil said.
Forest Oil said the term loans would be secured by Alaska’s assets. Forest Oil intends to “use the proceeds from the distribution to reduce its outstanding borrowings under its U.S. credit facility.”
Forest Oil said the activities of Forest Alaska “are intended to focus on the exploitation of its assets and participation in the proposed development program in the (Chevron-operated) McArthur River field over the next several years.”
As of Sept. 20, Forest Oil’s assets in Alaska consisted of daily production of 6,000 barrels of oil equivalent and, as of June 30, 32 million barrels of oil in proved reserves.
The estimated proved reserves, Forest Oil said, were based on an updated reserve report prepared by independent reserve engineers, DeGolyer & MacNaughton, which “estimated proved reserves in Alaska increased by approximately 12 million barrels of oil equivalent” since Forest Oil’s 2005 year-end reserve report. The increase was “due primarily to a field study and development plan for the McArthur River field. Alaska also owns 186,000 net acres of developed and undeveloped land and interests in production and drilling infrastructure, primarily offshore Cook Inlet.”
“We are excited about the prospects for both the Alaska assets and the remaining core assets within Forest and think it makes sense to segregate and finance them separately,” Clark said.
Forest talks up Alaska gas At Forest Oil’s 2006 analysts’ conference on March 16, 2006, Clark confirmed an Alaska strategy that he had outlined to shareholders six months earlier: Forest would expand its Alaska onshore natural gas production.
Clark told analysts that his company saw Cook Inlet onshore natural gas as one of its up and coming areas where there was current production, but where further exploration was needed. Alaska’s Susitna Valley fits within the company’s pure exploration areas, termed “flyers,” Clark said.
“The critical asset to this (Alaska) business unit is … gas acreage and our inability anywhere else in the world to replicate those kind of acreage sizes and have a market that was there and ready to go into,” he said.
In 2005, Forest Oil did six well workovers and drilled one exploration well, the Middle Lake unit 1A well. That well was completed and suspended in 2006.
This year Forest has done just two workovers to date.
Gurule’s fate unknown The Nov. 2 press release did not say if Forest Oil’s senior vice president for Alaska, Leonard Gurule, would remain at the helm in Alaska. But as of Nov. 2 he was still working from the Anchorage office.
Gurule told analysts in March that although Forest Oil was continuing its Cook Inlet oil production, the company really saw onshore natural gas as a growth opportunity in the Cook Inlet region.
“This is the area that we’re focusing in on,” he said, noting Forest Oil’s gross gas production had increased from zero to 15 million cubic feet of gas per day over the preceding 18 months.
The refocus, Gurule said, was the result of a strategic business study Forest had done in late 2004 that identified three reasons for a strategy of looking for oil and gas onshore.
“The first reason was that the cycle times from exploration to first production were much shorter than for what we were looking for offshore,” he said.
“The second reason was that the gas market was going from an oversupplied market to an undersupplied market. …
“The third reason was that land and competition onshore on the northwest side of the Cook Inlet is relatively light — you can get access to land and it’s not extremely expensive.”
Looks at all west side wells Forest Oil’s exploration success had resulted in part from exhaustive geologic studies of the west side of the inlet, Gurule said.
For example, the company looked at information from all of the wells that had been previously drilled in the area.
“We’ve mapped all of the horizons that we see in the Cook Inlet … across the west side of the Cook Inlet,” he said.
Forest Oil had also acquired about 800 miles of seismic and reprocessed it.
“Out of that reprocessing and interpretation what we found was about 27 leads and prospects,” he said. “Those leads and prospects are basically why we’re holding the acreage that we have here.”
Major acreage change In fact Forest Oil’s new strategy and subsequent investigations resulted in a significant shift in its acreage position, adhering to a policy of only holding onshore acreage with leads and prospects.
“When we started 18 months ago we had an onshore acreage position that was about 30,000 acres,” Gurule said in March. “Today we have an onshore acreage position that’s 101,000 (acres) — 96 percent of that’s undeveloped.”
That’s a turnover in acreage of about 98 percent, he said.
“We basically got rid of everything we had and acquired almost all new land onshore,” Gurule said.
In addition to holding its re-jigged acreage position, Forest planned to shoot seismic this year.
“We’re shooting about 100 miles of 2-D seismic … to confirm the leads and prospects that we have into a drillable or mature status,” Gurule said.
And, he said, success in the company’s drilling in the West Foreland area resulted in the acquisition of some new acreage and a focused exploration program there. (In early 2005 Forest Oil announced an onshore gas discovery at West Foreland No. 2 which tested 15 million cubic feet per day from two zones.)
“Based on that success we picked up at the end of ’05 … another 9,700 acres … on the West Forelands Peninsula that we think will yield some similar results to what we’ve had with those three wells there,” Gurule said. “Two months later and currently we’re shooting a 25-square mile 3-D seismic on that acreage.”
In May 2006, Forest Oil made the highest per-acre bid at a state Cook Inlet oil and gas lease sale, bidding $45.51 an acre, a total of $116,505.60, for tract 285 at North Middle Ground Shoal.
EOR at West McArthur River In May, Forest Oil also announced plans for an enhanced oil recovery pilot project in a single well at its West McArthur River unit on the west side of Cook Inlet.
In late October, state officials said they expected to see an injection order issued before the end of the year.
Forest Oil — presumably now Forest Alaska — wants to inject water into an offshore oil pool in the Hemlock formation at a depth of 9,251 to 9,438 feet below sea level to improve recovery from the pool, which is offshore and produced from two onshore pads.
Current production from West McArthur River is some 1,270 barrels of oil per day and 3,350 barrels of water per day.
Forest Oil did not provide an estimate of the EOR impact of the water injection. It said original oil in place at West McArthur River was estimated at 30-36 million barrels, with cumulative recovery of 11.1 million barrels through April 30, 2006, a 31-37 percent recovery rate.
Forest Oil said other reservoirs with mature waterfloods have recoveries of as much as 42 percent of OOIP.
Sees potential in Susitna basin Forest Oil holds two exploration license areas in the Susitna Valley, north of the Cook Inlet basin. In its Nov. 2 announcement the company did not say whether or not this acreage would be included in the assets transferred to Forest Alaska.
“The continuous acreage is about 857,000 acres: North to south that’s 44 miles; east to west that’s 34 miles,” Gurule said in March.
These two blocks form the largest exploration blocks in Alaska, he said, noting both the Susitna basin and the Cook Inlet basin contain multiple stacked pay zones.
There was about 700 miles of old 2-D seismic shot on Forest Oil’s Susitna acreage.
“Only about half of that (seismic) we thought was any good,” Gurule said. “We took that half, had it reprocessed and we’ve looked at that and mapped some structures.”
Forest Oil has identified “some pretty big structures” and has identified four prospects in the southern block and another three prospects in the northern block, Gurule said.
“Today we’re out there shooting an additional 125 miles of 2-D seismic (in the southern block). … We’re shooting that seismic to firm up to a drill hole site,” he said.
But Forest Oil said in March that it wanted to find a partner for the Susitna Valley exploration license.
“We don’t plan to do this alone,” Gurule said at the time. “We’re talking to a couple of companies.”
In Alaska, prior to the Oct. 31 asset spinoff, Forest Oil operated four Cook Inlet units, including Redoubt Shoal (312,386 barrels of oil produced in 2005), West Foreland (260,372 mcf of natural gas in 2005), West McArthur River (516,833 barrels of oil in 2005), and Kustatan (42,071 mcf of gas in 2005).
The company also held a 12 percent interest in Cook Inlet basin’s Cosmopolitan unit, a 47 percent interest in the inlet’s Trading Bay and McArthur River fields, and a 40 percent interest in Cook Inlet Pipeline Co., the owner of the Cook Inlet pipeline and Drift River marine terminal that export liquids from oil fields on the west side of the body of water called Cook Inlet.
On the North Slope, which was presumably excluded from the spinoff, Forest Oil has small working interests in the Prudhoe Bay and Point Thomson units.
Editor’s note: This issue of Petroleum News closed at noon on Nov. 2. At that time Forest Oil had not returned phone calls from Petroleum News.
| 