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Companies spar over well south of Ninilchik Unocal says well needed to prove up gas reserves; Marathon says location selection should await results from Unocal’s new seismic survey Kristen Nelson PNA Editor-in-Chief
Unocal Alaska Resources and Marathon Oil Co. are sparring over the location of a gas exploration well Unocal wants to drill on the Kenai Peninsula. Because Unocal wants to drill closer than 1,500 feet to a property line, it needs a spacing exception from the Alaska Oil and Gas Conservation Commission. Unocal applied for the exception for the 1 Albright well at the south Ninilchik drilling pad April 17; and Marathon, which has an interest in adjacent land, objected. (See related news brief on page B7.)
Unocal is proposing a vertical well 2,277 feet from the west line and 550 feet from the north line in section 24 of township 1 south range14 west.
Marathon has extensive acreage in the area and last year drilled the 1 Grassim Oskolkoff exploration well to the northwest of Unocal’s proposed location to a bottomhole location in section 15 of township 1 north range 13 west. Results from the 1 Grassim Oskolkoff have not been announced, but Marathon is currently permitting the 2 Grassim Oskolkoff. Matter under advisement The commission held a hearing June 28, heard from both companies and took the matter under advisement.
Commissioner Dan Seamount reclused himself from the hearing because he has worked for both Marathon and Unocal, and was involved in work for Unocal on the Ninilchik prospect where the proposed well is located.
Kevin Tabler, Unocal Alaska’s manager of land and government affairs, said Unocal had no concern about Seamount participating, but attorney Tom Amodio, representing Marathon, said Marathon was concerned because Seamount might have knowledge of the prospect which is not in the public record which could affect the commission’s decision.
Seamount holds Unocal stock, but Commission Chair Cammy Taylor ruled that Seamount’s participation would not violate the state’s ethics act because any decision the commission made would have an insignificant financial impact on his holdings. Taylor said there was no concern about Seamount’s ability to make a fair and impartial decision, but because the issues were unsure, she said, the commission was erring on the side of caution and Seamount would not participate in this decision. Unocal wants to identify more reserves %¼ &[00]M?ld the commission that Unocal’s proposed location is the best available on 100 percent Unocal-acreage to evaluate proposed objectives and said areas farther from the property line are unsuitable for several reasons: because they are wetlands, because other property owners will not cooperate, because there are access problems or because a well drilled lower on the structure would only confirm a well drilled in the 1960s, and not identify new reserves.
Unocal’s goal, Tabler said, is to certify “new and sufficient reserves” to support a gas pipeline south to Homer. Unocal, Homer Electric and Enstar have signed a memorandum of understanding for the gas pipeline, and Unocal’s role in the agreement, he said, is to prove up enough gas reserves to justify financing for the pipeline.
Tabler said it is Unocal’s hope that Marathon will soon join the gas pipeline project, but he said that while the companies were able to reach agreement on a drilling location in an area to the north for similar objectives, they disagreed on structural interpretations in this area and were unable to reach an agreement to drill this well jointly. Tabler said that Unocal believes that drilling locations proposed by Marathon would result in a well that was a “twin” of a well drilled by Mobil in the 1960s, and would only confirm gas reserves from that well, not identify additional reserves. Correlative rights, notification issues raised Commissioner Julie Heusser asked how much testing would be required and Tabler said it would depend on the zones encountered. The 1 Mobil Ninilchik well, drilled in 1964, found at least three gas zones, but those were not tested, Tabler said. That well was a vertical hole drilled to 12,724 feet and plugged and abandoned after logging with no oil or gas shows reported.
Taylor asked if the testing would be enough to allow the commission to determine correlative rights, and Tabler said he was not sure there was a correlative rights issue. Reserve certification is the company’s present goal, he said, and if reserves are inadequate there will be no production. Production allocation issues would be a separate issue and could be handled either through unitization or through agreement on allocation. Unocal is not asking to produce at this time, Tabler said.
Another issue that was raised was the requirement that all affected parties within a 3,000 foot diameter be notified of the request for a spacing exception. Amodio told the commission that Marathon could find no evidence it ever received notification. Unocal told the commission it determined who the affected parties were and sent certified letters of notification, but due to an error in the mailing did not notify Marathon. Unocal assured the commission that all other affected parties had been notified, and said Marathon was inadvertently left off the mailing because of a programming error which was only discovered after Marathon told Unocal it had not been notified the day before the hearing. Companies have different data Tabler said that Unocal had two-dimensional seismic shot over the prospect in May and hopes to have results before drilling to help identify where a fault is located. Unocal’s existing mapping of the prospect is based on public well data and on older seismic shot or purchased by Unocal.
Marathon asked for more detail on why Unocal believes this is the only place to drill and David Brimberry of Marathon told the commission that Marathon’s seismic may be better than what Unocal has. “Our interpretations do differ,” he said. Brimberry said Marathon believes the Tyonek sands encountered in the Mobil Ninilchik well are similar in extent to Kenai gas field sands 40 miles to the north, from 600 acres to as much as 1,200 acres, so a Unocal well at the proposed location would draw gas from leases in the section to the north, encroaching on Marathon’s correlative rights.
Amodio told the commission that Marathon may need to present data, but he said Marathon didn’t want to present proprietary data when Unocal had not done so. He said Marathon does not believe that Unocal has made its case.
“We’re not the applicant. I don’t see where we have to make the case,” Amodio said. He said Marathon believes the commission should defer its decision until Unocal can present data from its new seismic. He also said that Marathon would not object to the location of the well if it could never be used for production.
“We’re not asking anyone for help in picking a location,” Tabler said, and are not asking for money to drill the well. There could be allocation issues, he said, and those would be addressed when there is production. He rejected Marathon’s suggestion that Unocal drill the well as an expendable exploration well.
The commission accepted maps which Unocal used in its presentation into evidence and said it would take the matter under advisement.
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