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State denies unit at Otter gas prospect Cook Inlet Energy had pledged more drilling, but Alaska’s oil and gas director finds that company can proceed lease by lease Wesley Loy For Petroleum News
Alaska’s oil and gas director has denied Cook Inlet Energy LLC’s application to form the Otter oil and gas unit.
Otter is an onshore natural gas prospect on the inlet’s west side, about nine miles north of the Beluga River gas field and five miles west of the Lewis River gas field.
Cook Inlet Energy in January applied to unitize portions of four state oil and gas leases. The unit would have encompassed 5,855 acres. Part of the acreage is within the Susitna Flats State Game Refuge.
The company said approval of the unit would extend two expiring leases, and allow for the most efficient exploration of the acreage.
Bill Barron, director of the state Division of Oil and Gas, denied the application in a 17-page decision signed May 23.
Barron found that unitizing the acreage wasn’t necessary, and that Cook Inlet Energy had yet to prove a viable reservoir for development.
One well partially drilled Cook Inlet Energy is a small, Anchorage company whose producing properties include oil and gas wells on the offshore Osprey platform, and the West McArthur River oil field. The company is a subsidiary of Tennessee-based, publicly traded Miller Energy Resources Inc.
Cook Inlet Energy is pursuing exploration of a number of shallow gas prospects, including Otter.
In May 2012, the company spud the Otter No. 1 exploratory well on lease ADL 390579, one of the four leases proposed for unitization.
Due to mechanical problems with the drilling rig’s mud pumps, the company was unable to bore the well to full depth. The well reached 5,686 feet on a planned bottomhole depth of 7,100 feet, Barron’s decision document said.
Still, Cook Inlet Energy was encouraged by what it learned from the well.
Cook Inlet Energy acquired lease ADL 390579 and an adjoining lease in 2009 out of the bankruptcy proceedings of another company, Pacific Energy Resources Ltd.
ADL 390579 was due to expire at the end of May 2012. But the state has extended the lease term on account of the drilling operations. The second ex-Pacific lease is due to expire on Sept. 30.
The other two leases proposed for the Otter unit are good until February 2018. Cook Inlet Energy acquired them in a 2010 lease sale.
More drilling pledged In its unit application, Cook Inlet Energy said it wanted to “rationally explore and develop” Otter based on geological, engineering and commercial considerations, rather than drilling wells just to hold onto expiring leases.
Cook Inlet Energy said it anticipated building up to two gravel drill pads in addition to the one already built for the Otter No. 1 well. Without unitization, the company said it would need at least four pads to develop the prospect lease by lease.
The company pledged to either deepen the Otter No. 1 well to evaluate more of the Beluga formation, or drill a new exploratory well by March 31, 2015.
If either operation succeeded, Cook Inlet Energy said it would drill a delineation well by March 31, 2016.
Barron found the company’s unit application fell short in multiple ways.
“It is not in the public interest to approve formation of the Otter Unit at this time,” he wrote.
Unitization isn’t necessary, as Cook Inlet Energy has ample time to prove up its prospect lease by lease, Barron found. If the Otter structure produces, he said, the leases being drained would be extended automatically even if actual drilling didn’t occur on them.
Barron further noted Cook Inlet Energy is the sole working interest owner in the leases.
Is Otter for real? Barron’s decision seemed to indicate the main issue is whether Cook Inlet Energy has a good prospect in Otter.
The company’s unit application lacked a clear commitment to develop, Barron said, evidently because a proven reservoir has yet to be established.
His decision provided considerable detail on the Otter No. 1 well.
The borehole penetrated both the Sterling and Beluga formations. Gas shows were encountered in sandstones at several distinct horizons and perforations were shot in an attempt to complete the well. But initial testing of the perforated interval disappointed.
“Swabbing and hydraulic fracturing operations were performed for months after drilling ceased to trigger production of hydrocarbons from the Otter No. 1 well,” the decision said. “The well did not flow to the surface and it was suspended.”
In summary, Cook Inlet Energy “has been unable to provide evidence of a reservoir at the Otter structure,” Barron wrote.
“However, the structural trapping configuration mapped from seismic data and multiple sandstone horizons with gas shows clearly indicate a potential hydrocarbon accumulation,” he said.
Another well, the Texas International Pretty Creek State No. 1, was spud in late 1974 less than a mile away. An interval from 6,009 to 6,014 feet was perforated, but testing failed to produce measurable quantities of gas, the Barron decision said.
Were the unit approved as proposed, Cook Inlet Energy could hold the unit area for nearly three years, until March 31, 2016, simply by deepening the Otter No. 1 well, Barron said.
That, he said, is “not an adequate approach to development of state resources.”
Cook Inlet Energy, in an April 30 press release, said it planned to use its company-owned rig 34 to spud a well on the Olsen Creek gas prospect by June 15, then deepen the Otter No. 1 well afterward. Olsen Creek is about seven miles southwest of Otter.
Barron’s decision said Cook Inlet Energy had 20 days to appeal the unit denial.
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