THE EXPLORERS 2005: Aurora continues to bolster CI gas output

Busy drilling season for company as Three Mile Creek field comes on line; also looking to drill for oil

Alan Bailey

Petroleum News

2005 has seen continued progress for Aurora Gas’ strategy of developing relatively low-risk gas plays onshore around the Cook Inlet. The company now operates five gas fields on the west side of the inlet: the Moquawkie, Lone Creek, Three Mile Creek, Nicolai Creek and Kaloa fields.

“We are producing about 6 million cubic feet of gas a day and could double that fairly easily,” Ed Jones, Aurora’s executive vice president, production, told Petroleum News in July.

Started at Three Mile Creek

“In January we completed the Three Mile Creek No. 1 well,” Jones said.

Aurora’s drilling rig returned to the No. 1 well in May to add some perforations. Bringing the well on stream then required the construction of surface facilities and a five-mile pipeline to the Lone Star gathering system for export to the Beluga gas line. The Three Mile Creek field started production on Aug. 13 and is now selling a little more than 4 million cubic feet of gas per day, Jones said.

The Moquawkie No. 3 well also came on stream in August and is now producing at 3 million to 4 million cubic feet per day from the Moquawkie field. This particular well required drilling an offset to Aurora’s old re-entry to the Moquawkie No. 1 well, Jones explained. The No. 3 well is relatively shallow and taps reserves that were inaccessible from the No. 1 well, he said.

After the work at Moquawkie, Aurora drilled the Lone Creek No. 3 well to a depth of 3,025 feet in the Lone Creek field — the No. 3 well forms an offset to the Lone Creek No. 1 well and has proved particularly productive.

“It tested with combined ‘absolute open flow’ rates of about 40 million cubic feet per day from four-point flow tests (the sum of two tests, lower and upper zones),” Jones said. That 40 million cubic feet per day test number translates to a potential production rate of 16.4 million cubic feet per day under normal operating conditions. But Aurora expects to choke back production from this well to an initial rate of about 5 million cubic feet per day until gas demand increases during the winter.

Aspen disappointing

“The well was drilled to a total depth of 4,485 feet and found subcommercial gas,” Jones said. “We tested a number of zones, but the well did not test gas flow at high enough rates to make a completion worthwhile, so plugs were set in the well and it was suspended until a decision is made to utilize the well bore for other purposes (such as a side track or deepening) or to permanently abandon it.”

But although the gas targets in this prospect didn’t work out, there’s a possibility of finding oil at greater depths — in August Andy Clifford, Aurora’s vice president for exploration, told Petroleum News that Aurora plans to drill deep for oil at Aspen, after drilling the company’s Endeavour oil prospect on the Kenai Peninsula.

Some further development wells should round off the 2005 drilling season on the west side of the Inlet — the company expects to drill a third well in the Kaloa field and then do some further development drilling at Three Mile Creek.

“We have a couple of development locations up at Three Mile Creek that we are looking towards permitting,” Jones said. “That would be our fifth and sixth wells of the season.”

Aurora also has a prospect at Long Lake that it wants to drill, despite previous disappointment when the company re-entered an old Texaco well at that prospect.

“The sands all indicated gas but we got a lot of water along with it so it was not commercial,” Jones said. But the company still thinks that there’s a viable structure at Long Lake and may move up structure for its next well.

Aurora’s Nicolai Creek field at the north end of Trading Bay remains shut in until the company can establish a commercial arrangement for shipping gas through the Cook Inlet Gas Gathering System that moves gas from fields in the Trading Bay area on the west side of the inlet to Nikiski on the east side of the inlet. Marathon and Unocal operate CIGGS as a private, unregulated system. The question of whether CIGGS should continue as a private system or whether it should be regulated by the Regulatory Commission of Alaska is currently the subject of a dispute filed with RCA. (See On Deadline section for update.)

“We have permission from the RCA to go ahead on an interim basis and use CIGGS (for Nicolai Creek), and the agreement that everybody reached was … that by doing so nobody’s compromising any of the arguments — it’s a short term deal,” Jones said. “But you still have to have a commercial deal with one of the two owners, Unocal or Marathon.”

Meantime the companies involved in the CIGGS dispute have reached an agreement in principle on the private operation of the system but are still trying to hammer out the details of the commercial terms for use of the system. There’s a strong incentive to resolve the remaining issues, to enable the delivery of additional gas through CIGGS to Agrium’s beleaguered fertilizer plant at Nikiski.

Other than Nicolai Creek, all of Aurora’s gas fields feed into the Beluga gas line that runs north up the west side of Cook Inlet. The Beluga line is regulated but is currently subject to a tariff dispute.

All gas passing through the Beluga line goes north into the Enstar Natural Gas Co.’s system, up to the Matanuska-Susitna Borough and thence down to Anchorage. However, there’s interest in whether the Beluga line could support bi-directional flow, so that some gas could pass south into CIGGS. That would enable delivery of some additional gas to the Nikiski LNG or fertilizer plants and would increase throughput in the Beluga line.

Drilling for oil

“We always had the intention from the beginning … to look at the oil potential because this basin’s produced over a billion barrels of oil since the first discoveries in Swanson River back in ’59,” Clifford said.

Currently the company is negotiating with partners to drill for oil at its Endeavour prospect, near Anchor Point towards the southern end of the Kenai Peninsula. The Endeavour prospect is in the Hemlock and lower Tyonek formations, at depths between 8,000 and 9,000 feet, in a structural and stratigraphic setting that mirrors the nearby, offshore Cosmopolitan prospect, Clifford said. Cosmopolitan is known to contain oil.

Aurora is investigating the formation of a unit at Endeavour and drilling could start as early as November 2005. Meanwhile the company will continue developing gas reserves on the west side of the Cook Inlet, where it has established an efficient drilling program using its lightweight, drivable rig.

Jones said Aurora usually starts in April and drills through to November or December, moving from one well to the next during the season. The fact that the rig is not winterized limits the potential for drilling in the depths of the winter. Winter sea ice in the inlet also limits the drilling season; supplies have to be barged over from the east side of the inlet. And although Aurora minimizes transportation costs by stockpiling materials on the west side of the inlet, the logistics of operating a long way from the Alaska road system make drilling costs 20 to 25 percent higher than on the Kenai Peninsula, Jones said.

But rising gas prices in Southcentral Alaska have made the economics of gas development around Cook Inlet much more favorable than in the past; Aurora doesn’t foresee any difficulty in continuing to sell its gas.

Company President and CEO Scott Pfoff told Petroleum News that the company was founded on a premise that gas deliverability in the area is falling off rapidly while demand will continue.

“We don’t see any problem selling as much gas as we can find,” Pfoff said.