If all went well, Furie Operating Alaska LLC began installing a natural gas production platform in waters of the Cook Inlet this spring, after The Explorers went to print.
Although the company had originally planned to install the platform last summer, the parts only arrived in Alaska in September 2014 - too close to the onset of winter. The company eventually moved the components for the platform to Seattle for the winter.
Installation is now planned for early 2015, after the breakup of sea ice in Cook Inlet.
The installation will bring the total number of offshore platforms in the region to 17 and will allow the Alaska subsidiary of the German independent Deutsche Oel & Gas AG to begin development drilling and eventually bring its Kitchen Lights unit into production.
Many projects in Alaska move from exploration to development then into an extended effort to delineate producing reservoirs. The Kitchen Lights unit is somewhat unique.
The state created the unit in 2009 by combining three smaller prospects. The unit is currently the largest in the Cook Inlet basin. The current development project covers only a portion of the total area. The remainder requires further exploration and development.
The current plan of exploration divides the unit into four exploration blocks: North, Corsair, Central and Southwest. The production platform targets the Corsair block.
As Furie nears the third-quarter target for starting production, it is studying ways to finance both the development and future exploration activities at Kitchen Lights.
Furie is currently using equity from its parent company, from private German funds and through a $160 million credit facility from the private equity firm Energy Capital Partners to finance the development operations. The company recently asked the Alaska Industrial Development and Export Authority for as much as $50 million in financing.
The loan would cover the remaining costs to install the offshore platform, the subsea pipelines and the onshore production facility. “Getting the AIDEA financing allows us to shift some of our present equity over to the exploration side,” Vice President for Government and Regulatory Affairs Bruce Webb told Petroleum News in January 2015.
The Kitchen Lights unit exploration plan expires in early 2016. In a March 2015 plan, Furie said it would drill two development wells this year but postpone completion to 2016. The delay will allow the company to accommodate changes in its schedule for installing the production platform, will result in “significant cost savings by focusing on drilling operations” and will improve the effectiveness of completion activities by giving the company a chance to analyze the results of its 2015 drilling plans, according to Furie.
The plan also calls for Furie to either drill another exploration well in one of the unexplored blocks at the unit or to acquire 3-D seismic information over the entire unit.
Getting into the Kitchen
The optimistic situation at the Kitchen Lights unit is remarkable given its history.
The Houston-based independent Escopeta Oil & Gas Co. spent more than a decade acquiring a lease position in upper Cook Inlet, securing a jack-up rig and bringing the rig to Alaska to conduct an exploration program. All the while, the company had to contend with the regulatory consequences of missing deadlines. Although successful, the company had many bumps and bruises by the time it was ready to start drilling.
For one, a corporate shuffle in 2011 essentially divided Escopeta’s assets between operator Furie Operating Alaska LLC and primary working interest owner Cornucopia Oil and Gas Co. Also, the federal government hit the company with $15 million fine for violating the Jones Act, which regulates foreign ships such as the heavy lift vessel Escopeta used to transport its jack-up rig. Furie has been fighting the fine in court.
One benefit to all the wrangling, though, was the actual unit.
In July 2009, the state and the company resolved an ongoing dispute over missed work commitments by forming the Kitchen Lights unit. The 83,394-acre unit combined 40,733 acres from the Escopeta-operated Kitchen unit, 15,930 acres from the Renaissance Alaska LLC-operated Northern Lights prospect and 26,721 acres from the Corsair prospect previously owned by the bankrupt Pacific Energy Resources Ltd. into one unit.
Using the Spartan 151 jack-up rig, Furie drilled the Kitchen Lights Unit No. 1 well in 2011 and 2012. Because the jack-up arrived in Cook Inlet in summer 2011, Furie stopped drilling at approximately 8,805 feet when the end of the drilling season neared. The company had intended to drill to 16,500 feet. The company suspended operations, in part, because the state asked the company to slow the pace of its operations to ensure safety.
Even though the first well was only halfway to total depth, Furie announced a major discovery: approximately 46.7 billion cubic feet of gas in place, which, extrapolated over a larger area, suggested some 3.5 trillion cubic feet of natural gas present at the unit. If correct, those figures would rank among the largest discoveries ever for the Cook Inlet basin. Some state officials and industry watchers expressed skepticism, saying that the announcement pushed the upper limits of what geologists expected the basin to contain.
Speaking to lawmakers in March 2012, Furie President Damon Kade estimated probable gas reserves of 750 billion cubic feet and peak production of 30 million cubic feet per day from Kitchen Lights, far lower than the blockbuster November 2011 estimate. The lower figure was based on a smaller geographic drainage area, Kade later told Petroleum News.
The announcement made sense, given that Kitchen Lights had unified several smaller prospects. Kade said a deeper well might encounter additional gas, as well as oil.
In early 2013, Deutsche Oel & Gas released an assessment of “roughly one ninth of its production area in Kitchen Lights unit.” The assessment estimated a mid-case scenario of 72.1 million barrels of oil and 543.8 billion cubic feet of gas “classified as ‘probable’ and ‘prospective’ exploitable reserves.” Under generally accepted definitions, “probable” indicates 50 percent likelihood and “prospective” indicates 10 percent likelihood. The company subsequently pulled the release and never responded to requests for comment.
Such assessments would be interesting for any undeveloped field. But the intrigue is increased at Kitchen Lights because of previous grand predictions. In 2001, Escopeta President Danny Davis announced that a new analysis of old seismic information suggested that Cook Inlet contained a major undiscovered resource potential in the Kitchen and East Kitchen prospects. He named the prospects “kitchen” after the geological nickname for the superhot source rocks that produce oil and gas supplies.
Previous leaseholders in the region have also offered thoughts.
Before forming the Corsair unit over a portion of the current Kitchen Lights unit in 2003, Forest Oil estimated that the prospect might contain 137 million barrels of oil and up to 480 billion cubic feet of gas. Pacific Energy Resources Ltd. acquired the unit in 2007 and later estimated that recoverable reserves might be as high as 100 million barrels of oil and 500 billion cubic feet of natural gas. And previous estimates of the former Northern Lights prospects were in the range of 111 million to 358 million barrels of oil equivalent.
Corsair and Northern Lights are now exploration blocks in the Kitchen Lights unit.
KLU No. 2 through No. 6
Toward the end of it first season of drilling, Furie realized it would be unable to complete all its work commitments before the Kitchen Lights unit agreement expired in early 2012.
The company sought a four-year extension, through early 2016.
The state approved the extension, which came with a four-to-five-well plan of exploration as well as talk of a future plan of development with an offshore platform.
The exploration component of the plan proposed spreading out the wells to assess various small prospects across the unit area. The initial Kitchen Lights Unit No. 1 and No. 2 wells would be in the Corsair prospect. The Kitchen Lights Unit No. 3 well would be in the central block. The Kitchen Lights Unit No. 4 and No. 5 wells would be in the southwest block. A proposed Kitchen Lights Unit No. 6 well would be in the north block.
The actual wells have been spread out in a different configuration. Furie drilled Kitchen Lights Unit No. 1, No. 2, No. 2A and No. 3 in the Corsair Block, drilled Kitchen Lights Unit No. 4 in the North block and Kitchen Lights Unit No. 5 in the Central Block.
The Spartan 151 returned to Kitchen Lights in late April 2012.
By August, drilling had stopped at 15,298 feet, more than 1,000 feet shy of the target depth and also shy of the target pre-Tertiary rock, to leave time to begin a second well.
The Kitchen Lights Unit No. 2 well reached some 9,000 feet by the end of the season, according to Petroleum News sources. Around October 2012, Furie told the state it had finished sidetracking the well and planned to test several gas-bearing zones in the Beluga.
In mid-2013, Furie drilled the 10,393-foot Kitchen Lights Unit No. 3. The company completed the well with “mini-frac packs” in two Sterling zones and two Beluga zones to delineate the initial Kitchen Lights Unit No. 1 discovery. “We had a good test,” President Damon Kade told Petroleum News in July 2013. Kade declined to release results at the time. In a November 2014 plan of development, Furie said the well had produced 15.83 million cubic feet during a four-point test, which confirmed a commercial discovery. The samples taken during the test were 99 percent methane, according to the company.
The well was the justification for sanctioning a development program and will become the first development well at the unit when production begins later this year. The company has said expects the well to produce 15 million to 18 million cubic feet per day.
Soon after testing Kitchen Lights Unit No. 3, Furie began drilling Kitchen Lights Unit No. 4. The company suspended the well when the summer drilling season ended.
Saying it had “encountered potential oil and gas reserves,” Furie permitted a 3-D seismic campaign as it completed the well. The campaign would “characterize the subsurface geological structure and confirm exploration and drilling targets and reservoirs.”
Several months later, SAE Exploration began permitting a separate 3-D seismic survey - independent of Furie - covering a similar region around the Kitchen Lights unit.
Furie drilled the 11,800-foot Kitchen Lights Unit No. 5 well in mid-2014. The well was a dry hole, according to information in a November 2014 unit plan of development.
The company plans to drill Kitchen Lights Unit No. 6 in the southwest block this spring.
The exploration work planned for this year - either drilling or seismic - will guide future activities at the unit, according to Furie. The working interest owners will either commit to drilling “one or more delineation or exploration wells in one or more exploration blocks outside the Corsair block” or will sanction a development for “one or more” blocks outside the Corsair block. Those activities would occur in future years.
That said, the results of the exploration activities planned for this year “may be the basis for redefining or contracting portions of exploration blocks” before the end of the year, according to Furie. If the company fails to meet any of the work commitments described in the plan of exploration, the company will contract one exploration block from the unit.
Is there a market?
All exploration is predicated on the promise of future sales.
In early 2015, Furie announced that it had previously secured a multiyear contract to supply more than 4 billion cubic feet per year to an unnamed utility starting Jan. 1, 2016.
With the unit expected to come online in August 2015, the company is looking for a short-term or interruptible contract to provide cash flow through the end of the year.
In addition to the 2016 contract, Furie said it has negotiated term sheets for two other contracts. Ideally, the company wants to contract some 85 million cubic feet per day.
