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Cook Inlet Energy proposes Otter unit Company commits to further drilling on natural gas prospect north of Beluga field; Otter No. 1 well had ‘strong hydrocarbon shows’ Wesley Loy For Petroleum News
Cook Inlet Energy LLC is looking to form a new oil and gas unit at its Otter prospect.
The proposed unit would take in 5,855 acres, or portions of four state leases.
In application materials submitted Jan. 16 to the state Division of Oil and Gas, the company said approval of the unit would extend two expiring leases, and would allow for the most efficient exploration of the acreage.
Cook Inlet Energy drilled an exploratory well in 2012 at the Otter natural gas prospect.
The company ran into problems and couldn’t complete the Otter No. 1 well to full depth. But the well nevertheless encountered “reservoir quality sands with strong hydrocarbon shows,” and these remain under evaluation, the company’s unit application said.
The company is pledging further drilling in exchange for unit approval.
Status of leases Cook Inlet Energy, based in Anchorage, is a relatively new oil and gas producer with a number of properties on the inlet’s west side. These include the West McArthur River oil field and the offshore Redoubt unit with the Osprey platform.
The company is a subsidiary of Miller Energy Resources Inc., a publicly traded firm headquartered in Knoxville, Tenn.
Otter is among several natural gas prospects in the company’s sights. It’s situated about nine miles north of the ConocoPhillips-operated Beluga River gas field. A couple more gas fields are in the neighborhood, including Lewis River and Pretty Creek.
Part of the proposed Otter unit is within the Susitna Flats State Game Refuge.
The unit would tie together portions of four leases: ADL 390579, ADL 390749, ADL 391621 and ADL 391624.
Together, the leases encompass 13,324 acres. Cook Inlet Energy is looking to unitize a core area of 5,855 acres.
The primary term on the largest lease, the 5,760-acre ADL 390579, expired May 31, 2012. But the Otter No. 1 well is on this lease, and the drilling operations allow the company to hold the lease beyond term.
Another lease, ADL 390749, is due to expire in a few months, on Sept. 30.
The other two leases are good into 2018.
Why unitize? Unitizing acreage would minimize the Otter footprint, Cook Inlet Energy said.
The goal is to “rationally explore and develop” Otter based on geological, engineering and commercial considerations, the company said, rather than drilling wells just to hold onto expiring leases.
Cook Inlet Energy said it anticipates building up to two gravel drill pads in addition to the one already built for the Otter No. 1 well. To develop the prospect lease by lease, at least four pads would be needed.
Unitizing acreage does present a tradeoff for the state as the landowner. Were the leases to expire, the state could realize revenue from offering the land again at a future lease sale.
But any revenue loss is more than made up by timely development of the resource, Cook Inlet Energy said.
“CIE is positioned to explore and develop this unit faster than anyone else, with up-to-date data, a drill rig in the area, and 100 percent working interest in the proposed unit,” the company’s unit application said. “This area is in close proximity to the Beluga pipeline, with only a short 4.5-mile pipeline needed to connect Otter with the Cook Inlet gas distribution system. CIE anticipates being able to put much-needed gas into the Cook Inlet energy system within a short period of time after initial development of this prospect. If these leases were allowed to expire, it would be a minimum of three years before another operator would have the ability to acquire the acreage, then permit and explore this area.”
The company already has applied to the state for a pipeline right of way for Otter.
Drilling commitments Cook Inlet Energy said it owns or has licensed about 45 miles of 2-D seismic covering the Otter structure, and spent more than $9 million in 2012 on exploration of the prospect.
Using its own rig 34, the company spud the Otter No. 1 exploratory well on May 19, 2012, and went to 5,686 feet measured depth before “mechanical conditions” prevented drilling deeper.
The company would like to drill deeper to evaluate more of the Beluga formation, and possibly the Upper Tyonek formation.
“Additionally, deeper oil potential for the Lower Tyonek, Hemlock and deeper intervals may exist,” the unit application said.
In an initial plan of exploration, Cook Inlet Energy said it’s mulling options to re-enter and deepen the Otter No. 1 well using either a coiled-tubing unit or a conventional rig. But the company told the state it’s not prepared to commit to these operations, citing uncertainty about “mechanical viability” and equipment availability.
Should the re-entry options not pan out, Cook Inlet Energy is committing as part of its unit application to drill a second exploratory well at Otter by March 31, 2015.
If either the re-entry or the second well is successful, Cook Inlet Energy is pledging to drill, by March 31, 2016, a delineation well “in a northeasterly updip direction from the exploratory well.”
The Otter unit would terminate should Cook Inlet Energy fail to drill a well penetrating the entire Beluga formation prior to March 31, 2015, or if it misses the deadline for the delineation well.
The Division of Oil and Gas is taking public comment on the proposed Otter unit through March 25. See the application online at 1.usa.gov/YPLXe0.
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