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Marathon: 50 years in Alaska - Marathon celebrates 50 years in Alaska Company focuses on exploration opportunities for natural gas in Cook Inlet; faces permitting, regulatory, challenges Kristen Nelson Petroleum News Editor-in-Chief
Marathon Oil is marking its 50th year in Alaska.
Marathon, then known as the Ohio Oil Co., purchased its first leases on the Kenai Peninsula in 1954.
“Marathon and other partners leased the Swanson River area,” John Barnes, Marathon’s Alaska business unit manager, said Aug. 13. Marathon had an interest in the 1957 Swanson River oil discovery, the event which convinced Congress that Alaska, then a territory, could support itself as a state.
In the years that followed Marathon was a player in both oil and gas in the Cook Inlet basin: In 1959 Marathon participated in the Kenai natural gas field discovery and in 1961 began supplying natural gas to the Anchorage utility market.
Marathon’s first offshore oil field discoveries were at Trading Bay and McArthur River in 1965. Marathon partnered with Unocal in the Monopod platform at Trading Bay and the Grayling platform at McArthur River, and in 1967 set the Grayling platform as operator in partnership with Unocal.
Marathon discovered the Cannery Loop gas field near Kenai in 1979.
In 1986, Marathon set the Steelhead platform at McArthur River. This platform, designed and installed by Marathon, is the largest offshore platform in Cook Inlet. The LNG business Companies were exploring for oil in Cook Inlet, but they found a lot of gas, and using that gas was a challenge. Marathon began looking at opportunities in liquefied natural gas, and partnered with Phillips Petroleum (now ConocoPhillips) in the liquefied natural gas plant at Nikiski, the first LNG export out of North America, and the first LNG imported into Japan. Marathon manages shipping to the Far East, while ConocoPhillips manages the plant.
Marathon was active in both oil and gas in the inlet until 1996, when it sold most of its oil production to Forcenergy.
The company then focused on natural gas, and in recent years has been an aggressive natural gas explorer, with discoveries at Wolf Creek, Ninilchik and most recently Kasilof.
Marathon sees opportunities in Cook Inlet, Barnes said, but there are also challenges: permitting, pipeline regulation and a shrinking industry. The challenges Barnes said challenges include the number of permits required for a project. The permitting issue is a difficult one to solve, he said, “because in and of itself, each one of these permits makes sense,” and there is a good intention behind each permit. It’s the cumulative effect, he said, that is the problem, with 30-plus, 40-plus or even 50-plus permits required for a project, depending on the project and the landowner.
Barnes described the result as “issue creep, where what you thought would take a year takes two years, and you just start to accept that. And then two years is four years. It’s one permit; it’s now 45 permits.
“And it’s that creep, across the board, whether it’s on cost, permitting, timing, regulation, that’s a tough thing to turn around…”
Marathon is working with the state administration and the Legislature on these issues, he said.
If you don’t know how long it will take to complete a project because of permitting and regulatory uncertainties, he said, that is “not conducive to investment.” The shrinking industry Barnes said there is another challenge: the shrinking Cook Inlet service industry. In the 1980s, he said, when he first saw the Kenai, there were a lot of service companies.
“That’s not the case anymore,” he said.
The oil and gas industry in the inlet has gotten smaller, and the number of service and supply companies has shrunk. Fewer people are employed in the industry, he said, and there is less competition and fewer alternatives for service, “so it’s harder to see a vibrant strong industry in that environment.”
It’s a factor of activity level, he said, and as a result, “it almost feels like we’re becoming more remote, not less. … if you were working in Gabon or Russia, you might actually have a stronger service industry than we have here… it’s where the industry hot spot is,” he said.
The activity level in Cook Inlet is down, he said, and as it has declined, the industry has gotten weaker.
It’s all the service industries, he said: drilling, mud, labor, welding.
Barnes said Marathon’s capital budget in Alaska is a changing number as projects are added or deleted during the year, but said $70 million was probably in the ballpark.
Ben Schoffmann, Marathon’s Alaska asset team operations superintendent, said the company’s Alaska drilling budget has been “fairly flat, but slightly increasing on the number of wells, as we’ve improved efficiency.” Infrastructure has become a bigger capital requirement “as we have to move away from our mature assets and find new fields.” If a well is “off the infrastructure,” Schoffmann said, “then you’ve got a significant facility investment that’s required,” as opposed to the moderate investment to tie in a well at an existing field.
New infrastructure includes everything from field gathering systems to a building to put a computer in to new pipelines, he said. Key production Marathon has 30-plus employees in Alaska, Barnes said, and when you add dedicated contractor employees from VECO and Inlet Drilling the number is probably about three times that.
The company’s key production fields are Beaver Creek, Cannery Loop, Kenai, McArthur River, Wolf Lake and Ninilchik, with production from these properties averaging 168 million cubic feet per day for the first six months of this year. Production peaked at 220 million cubic feet on cold winter days. In 2003, Barnes said, Marathon sold about 65.8 billion cubic feet of natural gas, about a third of Cook Inlet production, supplying more than 50 percent of local utility demands.
Marathon is the largest supplier of natural gas to Southcentral Alaska utilities Enstar Natural Gas and Chugach Electric Association, and is a major supplier to industrial customers such as Kenai LNG Corp., Agrium and the Tesoro refinery.
The company has ownership in more than 118 miles of major natural gas lines serving these Cook Inlet markets.
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