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Vol. 19, No. 46 Week of November 16, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

The Producers 2014: ConocoPhillips operates Cook Inlet legacy assets

The Beluga River unit, North Cook Inlet unit and the Kenai liquefied natural gas terminal remain important

Eric Lidji

For Petroleum News

ConocoPhillips’ stature in Cook Inlet has shrunk over the past three years.

Hilcorp Alaska LLC is now the dominant producer in the region and several small independents are much more enthusiastic about exploration than ConocoPhillips.

And yet the Houston-based company remains an important player in the basin because it operates two legacy natural gas fields - the coastal Beluga River unit and the offshore North Cook Inlet unit - and a crucial facility: the Kenai liquefied natural gas terminal.

Those assets underpin two essential Cook Inlet operations: the Beluga River Power Plant and an export operation that increases the market reach of regional gas producers.

The Beluga River unit

Standard Oil Company of California discovered the Beluga River field in December 1962 while looking for oil in deeper formations along the west side of the Cook Inlet basin.

Socal brought the field online in 1968, after Chugach Electric Association built the nearby Beluga River Power Plant. With a major pipeline in 1984, Enstar Natural Gas Co. connected the field to residential and commercial heating markets in Anchorage.

Today, ConocoPhillips operates the unit. The ownership is split into thirds, equally, among ConocoPhillips, Hilcorp and the Anchorage utility Municipal Light & Power.

Between 2008 and 2012, ConocoPhillips conducted an expensive campaign to improve the performance - and particularly the deliverability - of the aging field. The program consisted of drilling four wells between 2008 and 2010, upgrading a compressor system in 2011 and drilling two more wells in 2012, in addition to ongoing maintenance work.

Those activities slowed in 2013. Through the end of 2013, Beluga River had 15 producing wells, two operating disposal wells, one plugged and abandoned well and nine shut-in wells, according to a May 2014 plan of development. The unit had an identical profile at the start of the year. ConocoPhillips had not drilled any additional wells in 2014 through September, according to the Alaska Oil and Gas Conservation Commission.

ConocoPhillips has described the field as being “fully delineated.”

ConocoPhillips proposed a slate of projects in its 2013-14 plan of development but ultimately deferred some of the work for its current plan, which runs through June 2015.

The current plan includes no drilling activities but calls for rigged workovers on the BRU 244-23, BRU 242-04 and BRU 224-13 wells, and various upgrades and maintenance activities on as many as 11 other wells. The plan also includes plans to re-cylinder seven wellhead compressors and projects to accommodate increased water production.

Averaging monthly production figures, the unit produced some 71.3 million cubic feet per day in July 2014, according to the AOGCC. Cumulatively, the Beluga River unit produced nearly 1.3 trillion cubic feet of gas through July 2014, according to the AOGCC.

The North Cook Inlet unit

Pan American Petroleum Corp. discovered the North Cook Inlet Tertiary System Gas Pool in 1962. The offshore field is developed from the Tyonek platform, which ties back to the east side of Cook Inlet and eventually feeds into the Kenai LNG facility.

North Cook Inlet came online in 1969. Today, ConocoPhillips owns the unit outright.

Averaging monthly production figures, the unit produced some 25.1 mmcf per day in July 2014. Cumulatively, the unit produced nearly 1.9 tcf through July 2014.

As with Beluga River, ConocoPhillips conducted a large development program at North Cook Inlet between 2008 and 2013. The work included drilling three wells in 2008 and 2009 and undertaking some maintenance and upgrades in 2012 that continued into 2013.

The 2013 program included a program to install or improve artificial lift at four wells to improve production. The program brought one shut-in well back into production and improved an active well, but the other two wells remain shut-in pending further work.

ConocoPhillips also replaced both of its cranes at the Tyonek platform last year

The current plan of development calls for “a rig work-over program that may or may not include drilling in 2014 or 2015” and “plans to evaluate future drilling opportunities after 2015,” language that ConocoPhillips also used in its previous plan of development.

The Kenai LNG terminal

The past three years have been unusual ones for the Kenai LNG terminal.

The export facility was the largest in the world when it began operations in 1969 but was increasingly overshadowed by larger facilities or those closer to East Asian markets.

ConocoPhillips and partner Marathon Oil announced plans in early 2011 to mothball the facility for lack of sufficient Asian contracts. But they ended up keeping the facility open through 2012 and into 2013 to accommodate an unexpected increase in Asian demand. ConocoPhillips bought out Marathon and now is the sole owner of the facility.

Those shipments ended when a federal export license expired in March 2013.

ConocoPhillips decided it would not seek an extension but said it would consider restarting the facility once local needs were met and would also consider alternative uses for the facility, including LNG imports to help meet the short term needs of utilities.

By the end of summer, those utilities had contracts in place to meet their needs through 2018, and so then acting Natural Resources Commissioner Joe Balash asked the company to apply for a new three-year license to connect Cook Inlet to additional markets.

“Without market opportunities for gas discoveries, companies lack the incentive to invest in continued exploration activities,” Balash wrote to the company in September 2013.

ConocoPhillips agreed.

In December, the company applied for a license to export as much as 40 billion cubic feet over two years. The U.S. Department of Energy approved the request in early 2014.

This year, ConocoPhillips plans to deliver six LNG shipments, the company said during a first quarter teleconference for investors. Each shipment would contain some 2.75 billion cubic feet of natural gas, of which some 60 percent is expected to be from third parties, according to ConocoPhillips. The first two cargoes shipped out during the second quarter, according to the company. However, in a report submitted to the Federal Energy Regulatory Commission, ConocoPhillips said it had shipped one cargo load through the first six months of 2014. The company also delivered 55 tanker-truck-loads of LNG to Fairbanks Natural Gas LLC, which operates a small distribution system in Fairbanks.

While the facility remains an important asset for encouraging exploration, its future remains uncertain. In October 2013, ExxonMobil, BP, ConocoPhillips and TransCanada chose Nikiski as the home for a proposed LNG terminal to serve their Alaska LNG project, which would serve a large diameter natural gas pipeline from the North Slope.

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