Cook Inlet Energy drilling at NFU

Three-well development program is largest activity to date since Cook Inlet Energy acquired the gas field; NFU 24-26 well under way

Eric Lidji

For Petroleum News

Cook Inlet Energy LLC is in the middle of a three-well development program at the North Fork unit, its largest activity since acquiring the Cook Inlet gas field last year.

The company spent much of 2014 analyzing existing seismic and well data in order to plan an appropriate drilling program, according to a 50th plan of development for the unit, submitted to the state in late December 2014. The company said it intended to drill three wells - NFU No. 24-26, NFU No. 42-35 and NFU No. 31-3 - from the existing North Fork pad using the recently purchased Glacier Rig 1, now known as Rig 37.

Cook Inlet Energy said that drilling on NFU No. 24-26 was already under way as of late December and drilling on NFU No. 42-35 would likely begin before the end of March 2015 (although work could be pushed beyond March). The company said it might “defer or substitute” NFU No. 31-3 based on analysis of information collected from the field.

For the current plan of development, through March 2016, the company said it would continue its delineation program with another three wells. The company said it would be analyzing the results of its current drilling program with an eye toward potentially drilling outside the existing North Fork Gas Pool No. 1 participating area boundaries.

The onshore North Fork unit is in the southern Kenai Peninsula, north of the city of Homer.

With commodity prices being what they have been over the past six months, the North Fork gas production is becomingly an increasingly valuable asset for Cook Inlet Energy.

The Alaska subsidiary of Tennessee-based Miller Energy Resources Ltd. started its tenure in Alaska by reviving the west side Cook Inlet assets of Pacific Energy, including the West McArthur River unit and the Redoubt unit. Those are oil fields, as is the Badami unit, an eastern North Slope field operated by Miller-subsidiary Savant Alaska LLC.

After closing on North Fork in February 2014, Miller touted the potential to drill as many as 24 additional wells at the unit. While many of those would expand existing gas production, the company also saw the potential for oil development. The company claimed to have had “encouraging preliminary results” from an evaluation of the oil potential in the deeper Hemlock formation at the field, conducted while working over a gas well. Previous tests at the field had cast doubt on the potential of oil development.

Any conversation about oil development seems like a hypothetical at the moment, given the rapid decline in global oil prices over the second half of 2014. By comparison, North Fork natural gas is sold on a long-term contract using an index based on natural gas futures. Currently, the contract price is above $6.50 per thousand cubic feet, according to Miller, which puts it at a great premium to natural gas prices throughout the Lower 48.

“Given the continued pressure on oil prices, we’re redirecting our drilling effort towards lower-risk and predominantly gas wells,” the recently appointed Miller Energy CEO Carl Giesler said in a December 2014 strategic statement. “We’re fortunate - and we think unique - as a company to have a solid inventory of gas wells and the ability to sell gas at a price greater than $6 per mcf. Because of the closed-loop nature of the Cook Inlet area in which we operate, gas trades for north of $6 per mcf and the state of Alaska shares via cash tax credits in 35 percent to 65 percent of our well costs.”

That shift is focus shows in the proposed “long term growth avenues” the company listed in recent investor presentations. While projects such as the Sword and Sabre prospects near West McArthur River and the Susitna Basin and Iniskin Bay exploration license regions are listed as possible solo developments or joint venture opportunities, the Badami unit is listed as a potential “sell-down” in addition to a joint venture opportunity.