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Forcenergy delays Osprey platform installation after Unocal drops out Companies signed operating agreement for Cook Inlet Redoubt Shoal unit in February; contract for platform was let the previous June Kristen Nelson PNA News Editor
Unocal Corp.’s decision not to participate in the Osprey platform being built for development of the Cook Inlet Redoubt Shoal oil prospect has left project operator Forcenergy Inc. shy of cash it had counted on to move ahead, delaying the project.
In October Unocal acquired a 30 percent interest in the five leases in the Cook Inlet Redoubt unit, which was established in 1997.
Gary Carlson, vice president of Forcenergy’s Alaska operations, told PNA March 5 that Unocal exercised its option to cancel participation at the last minute, and that didn’t leave Forcenergy enough time to look for a new partner.
“We’ve reached a milestone in the project that if we needed to delay it, it needed to be delayed right away,” Carlson said. The quarters module for the Osprey platform — built in Anchorage — were completed in February and were ready to be shipped to Korea in March for installation on the platform. Carlson said that the company is still looking at transportation issues, but that the immediate decision is to leave the quarters in Anchorage and the platform in Korea. Unocal never agreed to participate Unocal Alaska Resources spokeswoman Roxanne Sinz said Unocal Corp.’s senior management decided not to participate. Unocal’s 30 percent working interest in the leases is not affected she said. “The portion that we’ve elected not to participate in is under the joint operating agreement.”
“Unocal’s position,” she said, “is that we never agreed to participate in the project.” The companies signed a joint operating agreement for Redoubt Feb. 9, Sinz said. “We had 45 days in which to participate or not. And we sent them a letter on Feb. 23 electing not to participate.” Forcenergy, Unocal partners elsewhere in Cook Inlet Forcenergy became a partner in the Unocal-operated McArthur River and Trading Bay fields in Cook Inlet in 1996 when it acquired oil interests formerly held by Marathon Oil Co., primarily partnerships in fields operated by Unocal. In December 1996 Forcenergy and Unocal formed an alliance for developing and exploring various properties in the Cook Inlet basin, and jointly acquired tracts in the state’s 1996 Cook Inlet area lease sale. Forcenergy also owns and operates the oil-producing West McArthur River unit on the west side of Cook Inlet.Unit formed in August 1997 Forcenergy acquired the five leases over the Redoubt Shoal prospect in October 1996. Formation of the Redoubt unit in August 1997 continued two leases which would otherwise have expired in 1998. In exchange for extending the leases through approval of a unit, the state got seismic and exploration commitments from Forcenergy. Carlson said the leases aren’t in jeopardy and the company is “not worried about the unit; it’s just that we are extremely tight on cash flow and when this occurred — money that we were counting on to move forward with the project disappeared…”
Unocal’s share of the platform, he said, would have been about $10 million. Carlson said that by the terms of the operating agreement Unocal would have a 200 percent penalty if it wanted to get back into the platform project, making Unocal’s $10 million share some $30 million. Such penalty clauses are typical and can run as much as 600 percent on an exploration well, he said. Unit agreement signed in 1997 The August 1997 agreement which Forcenergy obtained from the Alaska Department of Natural Resources Division of Oil and Gas for the Redoubt unit had work commitments including 3-D seismic over the prospect and drilling an exploratory well from a jackup rig by Jan. 1, 2000, or contracting for a platform by that date. If Forcenergy had chosen to drill an exploration well from a jackup rig, the unit agreement said the well “must be spud by the end of 1999.”
In August 1998, Forcenergy made its first annual report to DNR on activities conducted under the Redoubt unit plan of operations. The company reported that 3-D seismic had been shot over the prospect and processing completed in May. Final 3-D structural interpretation of the reprocessed seismic was expected to be completed late in the third quarter of 1998 and the company said that a stratigraphic interpretation of the seismic data and a geologic model of the Redoubt were planned for completion by the end of 1998.
Forcenergy contracted for the construction of a platform with Hyundai Heavy Industries Co. Ltd. in June 1998, and the platform is under construction in South Korea. The quarters section of the platform was completed by VECO Construction Inc. in Anchorage in February. (See story on Osprey platform quarters on page A19.) Companies cross-assign lease interests In October of 1998, Unocal acquired a 30 percent interest in the leases at Redoubt Shoal. Unocal’s Sinz told PNA that the exchange of interests — Unocal acquired an interest at Redoubt and Forcenergy acquired interests in five Unocal leases — was part of an exchange under the 1996 exploration agreement between the companies. Sinz said that the 1996 agreement gave the companies rights to assign interests in various properties, “and we’re just finally getting around to those assignments.”
Forcenergy received 70 percent working interest in two Trading Bay unit leases adjacent to leases in which it had previously acquired Marathon’s interest. Forcenergy also acquired Unocal’s 50 percent working interest in three undeveloped leases adjacent to the southeastern corner of the Redoubt unit. Forcenergy already had the other 50 percent interest in those leases, so it now has 100 percent working interest. Oil price woes hit both Both companies have been hit by low oil prices. Forcenergy has put assets up for sale and is looking for partners in the Gulf of Mexico while Unocal has suspended efforts to sell assets — Cook Inlet interests among them — due to low prices.
In January, Forcenergy said it was dropping plans for a preferred stock issuance and early in February said it would reduce both staff and its capital budget. Unocal, which had been negotiating to sell its fertilizer business, including the plant in Nikiski, said Feb. 9 that it had temporarily given up on the potential of selling its agricultural products and carbon and minerals businesses because “depressed commodity prices have stalled our efforts to obtain full value…”
The unit operating agreement was signed by Forcenergy Feb. 9 and by Unocal Feb. 10. Unocal notified Forcenergy it did not intend to participate in the Osprey platform on Feb. 23. On Feb. 26 Unocal said that its process to sell its Alaska oil and gas business was over. Sinz told PNA that Unocal and a potential purchaser were unable to come to terms, “basically due to the business climate.”
In early March, Unocal announced a corporate restructuring, and also noted a promotion for the previous head of agricultural products, John Donohue (see related story on page A18) and named a replacement.
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