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Explorers 2011: Marathon activity in CI diminishing Drills fewer and few exploration wells in Cook Inlet basin, but continues gas production Alan Bailey Petroleum News
In the decades since Marathon Oil Co. first arrived in Alaska in 1954, operating then as the Ohio Oil Co., Alaska has become a world-class oil province, Anchorage has expanded into a vibrant mid-sized city and the production of oil and gas from Cook Inlet has peaked and declined. Marathon, a major gas producer in the Cook Inlet basin has been supplying Anchorage with utility gas continuously since 1961. And in 1969 the company partnered with what is now ConocoPhillips to build on the Kenai Peninsula the first U.S. liquefied natural gas facility, to export LNG from Cook Inlet to Japan.
In 1996 the company sold its Alaska oil properties to focus on Cook Inlet natural gas production. The company now operates gas fields in the Beaver Creek, Cannery Loop, Kasilof, Kenai, Ninilchik, North Trading Bay and Sterling units, while also having interests in several non-operated fields. The company owns and operates several pipelines that form part of the Cook Inlet basin natural gas infrastructure. The company also operates its own gas storage facility in part of the Kenai gas field, using the facility to warehouse summer-produced gas to ensure the availability of gas to meet gas supply contractual obligations during periods of high winter gas demand.
But times are changing.
Tightening supplies As production from aging Cook Inlet gas fields declines, the availability of Cook Inlet gas for delivery to Southcentral Alaska power and gas utilities has tightened. Concerns about the delivery of gas at adequate rates during peak winter cold have increased and utility gas prices have risen, as what used to be an excess of gas dwindles to a potential future shortage.
Faced with reduced gas supplies for the Kenai Peninsula LNG plant and with an inability to secure new contracts for the sale of the modest quantities of LNG now being delivered from the plant, in February 2011 ConocoPhillips and Marathon announced that they were going to close the plant. The companies originally planned the closure for the spring, but some additional unexpected shipments of LNG to Japan and China kept the facility open through October, perhaps longer. When the facility does close, the owner companies plan to mothball it for possible future use.
Meantime Marathon has continued using its Glacier Rig No.1 to drill new development wells in its gas fields, albeit at a slower rate than in earlier years. In investor presentations made in the fall of 2010, the company said that it planned to drill between two and six wells per year in Alaska, a sharp drop from the 10 or more wells per year that it drilled in the mid-2000s. In later U.S. Securities and Exchange Commission filings the company said that it anticipated drilling one to three wells per year in Alaska in 2011 and 2012. The company drilled nine wells in 2008, six wells in 2009 and three wells in 2010.
The only exploration drilling that Marathon has done in recent years was for one of its 2010 wells, the Sunrise LK2 well in Cook Inlet Region Inc. land, inside the Kenai National Wildlife Refuge on the Kenai Peninsula. Beyond saying that the well “encountered a zone of interest,” Marathon has not commented on the results of its Sunrise drilling.
Summer gas One practical problem with the closure of the LNG plant is the loss of the plant’s role in providing a market for summer-produced gas, when local utility gas demand is quite low. Without the plant’s ability to process summer gas not required for utility use, some gas wells might have to be shut in, thus putting future production from those wells at risk as water encroaches into well bores.
However, in March 2011 Carri Lockhart, the then production manager for Marathon’s Alaska operations, told the Alaska Legislature that the company’s storage facility in the Kenai gas field has the capability to warehouse all of the company’s summer gas production, thus enabling the company’s wells to continue to operate year-round. In addition, in its Nikiski field Marathon has been testing some new technology for stabilizing gas production after restarting a shut-in well or after throttling up a well that has been choked back, Lockhart said.
The tightening utility gas supply situation in Southcentral Alaska has caused Marathon to take some actions to improve the flexibility with which gas can flow through its gas pipeline infrastructure — as different gas wells come into play, responding to fluctuations in gas demand as winter temperatures drop, it is necessary to be able to switch the routings by which the gas moves from wellheads to market delivery points.
Bidirectional flow Lockhart told the Legislature that Marathon was implementing a bidirectional meter in its Kenai Nikiski pipeline on the Kenai Peninsula to allow more flexible use of the company’s Kenai gas storage facility. And in September the company applied to the Regulatory Commission of Alaska to allow bidirectional flow on the Cook Inlet Gas Gathering System under the Cook Inlet. CIGGS, operated by Marathon on behalf of itself and Chevron subsidiary, Union Oil, was designed to only flow gas west to east. But power utility Chugach Electric Association wants to be able to flow Kenai Peninsula gas east to west, if necessary, to bolster gas supplies for the power station at Beluga on the west side of the Inlet. Bidirectional gas flow through CIGGS could also help with gas deliveries to and from a new gas storage facility that Cook Inlet Natural Gas Storage Alaska is building near the City of Kenai.
In October RCA granted temporary approval for some necessary changes to CIGGS and the Kenai Nikiski pipeline, to allow bidirectional flow in CIGGS during the 2011-12 winter.
The Beluga pipeline, operated by a Marathon subsidiary, connects CIGGS with the Beluga power station and to the Enstar Natural Gas Co. gas transmission line connecting the west side of the Cook Inlet with the Matanuska Susitna Valley and Anchorage. Bidirectional flow has been possible in the Beluga pipeline for some time, but in early 2011 Beluga Pipe Line asked RCA to approve a radical new tariff for that line, saying that the existing tariff was not workable. Pipeline tariffs are critical factors in determining how companies in the Cook Inlet gas industry choose to move gas around the pipeline infrastructure. RCA has yet to issue a final ruling in the Beluga pipeline tariff case, although the various parties involved have submitted a settlement agreement.
As Marathon moves towards its 59th year in Alaska, a new manager has taken over the helm of its Alaska operations. In September Wade Hutchings replaced Carri Lockhart as Alaska asset team manager. Hutchings will doubtless have plenty to deal with as Marathon continues to adjust to the ever changing Cook Inlet gas industry.
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