Saturday, December 3, 2011

Cook Inlet energy projects under way

Kristen Nelson
Petroleum News

The Resource Development Council included a fairly complete Cook Inlet update on the program of its annual conference.

From oil and gas, through wind and underground coal gasification, to natural gas storage, companies involved in the current upsurge in Cook Inlet activities were on the podium Nov. 17.

Apache

Apache Corp., Cook Inlet’s newest big player, with more than 800,000 acres, was represented by its newly named Alaska general manager, John Hendrix, who told the RDC audience he remembers Cook Inlet in its heyday, before the discovery of Prudhoe Bay. But by the time he graduated from college and went to work for Schlumberger, the work was on the North Slope.
“All the focus, all the money, were going into Prudhoe Bay,” Hendrix said.

Apache is focused on the historic oil play in Cook Inlet and is looking for oil “with new 3-D seismic technology,” he said.

“We feel there’s potential out there. We’re more focused on oil — gas will come along with the oil … but we’re oil focused.”

Apache has begun a three-year 12,000-square mile 3-D seismic shoot in Cook Inlet using a new nodal technology.

Hendrix said there are 220 people on the west side of Cook Inlet deploying nodes with the first actual shoot done Nov. 11. He said crews will work until mid-December and then start back up Jan. 15. Twelve small drill rigs will be used to drill the holes onshore; offshore air guns will be used.

In all of its operations, Apache shoots a lot of seismic, Hendrix said.

“We’re a very seismic, geo-science oriented company … and you have to know the data before you drill. You gather the data, you put your strategy forward and then we drill.”

He also said that Apache’s “chairman, in a number of meetings I’ve been with him, he doesn’t want us to stop drilling until we hit bedrock. We don’t want anybody to come behind us and turn over a stone and find there’s oil reserves; we want to make sure when we drill, that we leave no … stone untouched.”

Buccaneer

Jim Watt, president and COO of Buccaneer Alaska, said Buccaneer sees majors moving out and independents moving into Cook Inlet, “normal for a lot of maturing basins.”

But, he said, Cook Inlet is an underexplored basin where recent U.S. Geological Survey reports show “tremendous upside” and where there is existing infrastructure, a strong local market and attractive natural gas prices.

Buccaneer has some 66,000 acres onshore and at one prospect, Kenai Loop, just north of the city of Kenai, it “leased, permitted and drilled our first well within nine months.” That natural gas well will be on production in December, he said. Buccaneer has a contract with Enstar for delivery beginning in April, “but we hope we will sell in the spot market” before then, Watt said.

At West Nicolai on the west side of Cook Inlet Buccaneer expects to acquire seismic in 2012 and drill in 2013.

And at West Eagle on the southern Kenai Peninsula Buccaneer is reprocessing seismic and would like to drill in 2012.

The company also has offshore prospects and has completed purchase of the Endeavour jack-up drilling rig for use in Cook Inlet. Buccaneer is also looking at the potential for liquefied natural gas for use in Alaska. Watt said “we feel we can move LNG from the Cook Inlet to Fairbanks and be very competitive.”

Furie/Escopeta

Drilling engineer Bob Laule, filling in for Furie Operating Alaska (formerly Escopeta Oil) President Ed Oliver, gave a brief update.
“Furie came; we drilled; and we found gas,” he said.

He said the company got a late start and wasn’t able to complete its well, but drilled to 8,800 feet and did “some testing which gave us some very good indications of gas in the Sterling and in the Beluga formations.”

Laule said they will re-enter the well next spring, approximately mid-April and drill to total depth, “set a couple of extra additional stands of pipe and go into a testing program.”

Then Furie will drill a second well. Laule said he didn’t know if they’d get to testing the second well next year.

Cook Inlet Energy

JR Wilcox, president of Cook Inlet Energy, said his company “is one of the few small independent oil producers in the state.” Cook Inlet Energy re-established production after Pacific Energy declared bankruptcy in 2009.
Production was shut down in September and Cook Inlet Energy was approved as successor operator in December, hired a staff and “within about two weeks we had some production going.”

Over the next four months the West McArthur River unit was restarted and production was up to 400 percent of what it was when it was shut-in.

Wilcox said the company has continued to optimize wells at its onshore properties.

It took longer to get the Osprey platform back into operation, but first oil came off the platform in June, he said. With a $100 million credit facility work began on a big rig for the Osprey platform so the company could begin drilling sidetracks from the platform and increase production. About a third of that rig is now in Nikiski, Wilcox said, and work will begin on the platform in the next few months.

Cook Inlet Energy is also building a small rig on the west side that will be truck mounted and “should be just an ideal rig for drilling gas on the west side.”

The company is “getting set up to execute our second phase of development on the Osprey platform” with the new rig, is continuing to optimize production from existing wells and continuing to exploit oil and gas reserves near its facilities, Wilcox said.

Enstar, CINGSA

John Sims, director of corporate communications for Cook Inlet Natural Gas Storage Alaska and Enstar Natural Gas, told the RDC audience that while Enstar is “very cautiously optimistic about all the activities going on here in Cook Inlet,” it has concerns until it has a contract for gas delivery before the Regulatory Commission of Alaska.
Semco Energy, Enstar’s parent company, and MidAmerican LLC, partners in Cook Inlet Natural Gas Storage Alaska, or CINGSA, were joined in October by First Alaska and Cook Inlet Region Inc., Sims said.

The five injection-withdrawal wells are being drilled for the storage project, with the project on schedule and slightly under budget. The first well cost about $7 million and the second two came in at about $5 million each, prior to perforating.

The middle three wells, technically the easiest, were drilled first, Sims said. It has taken about 30 days per well, with about half of that time required to move the rig. The wells should be completed by February.

With four customers for storage capacity — Enstar, Chugach Electric Association, ML&P and Homer Electric coming in later — CINGSA is at 11 percent capacity for the 11 billion cubic feet of gas storage.

There is expansion capacity at the facility and Sims said expansion will be “dependent on performance and also the market demand.”

Having storage, which will be available for withdrawal in the winter of 2012-13, helps with swing demand in the winter, he said, helps producers with production in the summer when gas is injected and acts as an insurance policy should there be equipment failure.

Asked whether with successful gas exploration and storage the utilities will still need LNG, Sims said, “storage isn’t the savior for Cook Inlet by any means; it’s a part of the puzzle.”

“Another piece involves the additional exploration and development that we’re seeing.”

But, he said, Enstar and the utilities are still evaluating the LNG option, “not just for gasifying going forward put also for an insurance policy.”

And, he said, “until we actually have those contracts that erase that need, it’s something that we’re still going to have to move forward with.”

Cook Inlet Region Inc.

Ethan Schutt, senior vice president, land and energy development, for Cook Inlet Region Inc., said the Fire Island wind project has regulatory approval for contracts from the Regulatory Commission of Alaska.
Financing for the project needs to be closed, “so that we can move into project construction in April,” he said, adding that the project has all its permits.

CIRI is also working on an underground coal gasification or UCG project.

The Cook Inlet basin has a “world-class coal resource that’s really never been exploited at a commercial level,” Schutt said.

CIRI has been working on UCG for almost three years, he said, and to date has “drilled 13 stratigraphic core holes to test both the geology and the resource,” and collected a suite of oil and gas type data during that program, “so we have a pretty robust data set from that site, a place just north of the Beluga River on the north side of Cook Inlet on CIRI surface and subsurface land.”

The data has been incorporated into a geological model.

CIRI is currently shooting some eight and a half line miles of “shallow high-resolution 2-D … to tie together all the data points that we collected with the drilling program and enhance our data set as we move towards a … characterization program to begin sometime in 2012.”

The project represents some 300-plus million tons of coal, Schutt said, “the equivalent of more than 4 (trillion cubic feet) of natural gas on an energy basis, so just in our little site we have quite a world-class resource in that coal.”