State approves Kasilof unit offshore Kenai Peninsula

Kristen Nelson, PNA editor-in-chief

The Department of Natural Resources Division of Oil and Gas has approved an application from Marathon Oil Co. for formation of the Kasilof unit. The 13,289-acre unit includes three state of Alaska oil and gas leases in state waters nearly five miles south of Cape Kasilof — offshore the Kenai Peninsula on the east side of Cook Inlet, the division said Oct. 25.

Two of the leases would have expired Jan. 31, 2003, if not included in the unit. The third lease would have expired April 30, 2008. All three leases have a 12.5 percent royalty to the state. Marathon has a 100 percent working interest in all three leases.

The state said the anticlinal trend that is the basis of the proposed Kasilof unit is identified in Cook Inlet areawide geology maps from the 1960s and 1970s. The Kasilof anticline begins near the mouth of the Kasilof River, the state said, and expends south for some five miles, paralleling the Ninilchik anticline and the shoreline of the Kenai Peninsula.

The state said Marathon indicated that the potential gas-producing reservoir is in the Tyonek formation and an initial well will be drilled to that formation.

Exploration history in the area

Five wells have been drilled in and near the proposed Kasilof unit area, four from 1964-1968 and one in 1975. Unocal formed a Kasilof unit in 1967 and that unit, the state said, contained most of the acreage included in Marathon’s current unit.

All of the 1960s and 1970s exploration wells were plugged and abandoned, but one well, Mesa Petroleum’s Kasilof Unit No. 2, drilled in 1968, flowed 2.3 million cubic feet of gas per day from 10 feet of Tyonek sandstone. The last well, drilled by Socal in 1975, flowed gas in amounts too small to measure from the Beluga formation.

The state said Tyonek formation gas accumulations are present in the Falls Creek and Ninilchik units south of the Kasilof unit, and in the Kenai unit to the north. “The Kenai unit has been producing gas since 1961,” the state said, “and Marathon continues to successfully delineate, and bring on-line, new reserves in this nearly field.”

The state said Marathon has also reported recent natural gas exploration and delineation success at the Ninilchik unit.

Based on that success the company plans to extend a gas transportation pipeline south from the Kenai unit through the Kasilof area to the Ninilchik unit. The state also said that technology has improved since the early wells were drilled.

“With new seismic data and improved well log analysis tools,” the state said, “Marathon believes it has a greater ability to identify and refine potential gas exploration prospects within the Tyonek and Beluga formations.”

Exploration plans

The state said that Marathon must begin drilling the first exploration well in the unit during the first year of its exploration plan, or, if the company elects to acquire 3-D seismic in lieu of drilling in that first year, any lands in leases ADL 384529 and ADL 384534 (the leases which would have expired this coming Jan. 31) not covered by the seismic program will automatically contract out of the unit and Marathon will pay the state for acreage contracted out of the unit and withheld from the state’s annual competitive leasing program.

If Marathon acquires 3-D seismic in the first year of its exploration plan, then it must drill its first well before the end of the second year. A second well must be drilled by the end of the third year of the plan and Marathon must drill at least one well by the end of the second year of the exploration plan or it will be in default and the unit will terminate.

“Marathon may propose at any time to accelerate the agreed-to work scope or propose a smaller Kasilof unit with a simple two-well work commitment that drills both of the two fault blocks in the prospect,” the state said. Any unexplored acreage will be contracted out of the unit at the end of three years.