ALASKA'S E&P OUTLOOK-3

Royalty relief, leasing, exploration may help maintain Cook Inlet production

Cook Inlet production largely held its own in 1995 while Alaska's overall oil production fell 4%. The Inlet's seven oil fields produced 15.5 million bbl of oil, or a decline of only 0.6% from 1994's 15.6 million bbl.

Fields and their average production in 1995 compared with 1994 in parentheses, are McArthur River 18,142 b/d (19,427); Middle Ground Shoal 7,735 b/d (7,577); Granite Point 7,069 b/d (6,053); Swanson River 4,738 b/d (4,645); West McArthur River 2,526 b/d (2,522); Trading Bay 1,979 b/d (2,037); and Beaver Creek 362 b/d (383).

Unocal's plans

Though disappointed that the first phase of the Chakachatna project did not increase production as hoped, Unocal Corp. believes there is more oil to be found in Cook Inlet Basin.

Of the $45 million in this year's budget for capital investment in Alaska, $30 million has been earmarked for Cook Inlet projects, with the remaining $15 million to pay for Unocal's share of investment in properties shared with other companies in the North Slope's Kuparuk River and Endicott fields.

Swanson River field, which supplies gas to fuel the company's fertilizer plant, will claim almost one-third of the Cook Inlet funding to pay for new wells and upgrading facilities to sustain gas deliveries. Remaining funds will pay for new wells, reworks, and facility upgrades on platforms in Granite Point, Middle Ground Shoal, and McArthur River fields and improvements to onshore processing facilities.

The drilling program since the first of this year has included redrills for two wells on Platform Granite Point in the field of the same name and redrill of another well on Platform Baker in the Middle Ground Shoal field. During the first phase of the Chakachatna project, three wells were drilled from Baker. Other wells were drilled from Platforms Dillon in Middle Ground Shoal field and Bruce and Anna in Granite Point field.

Permits have been issued for four more wells, including one on Baker and three on Platform Granite Point. All will be directional holes. On Baker, the 32 MGS State 17595 is programmed to bottom about 8,300 ft northeast of the surface location.

On Platform Granite Point, the 52 Granite Point is to bottom approximately 6,800 ft southeast of the surface location; the 53 Granite Point approximately 10,300 ft southwest of the surface location; and 54 Granite Point about 9,300 ft southwest of the surface location.

Royalty relief sought

Meanwhile a share of Cook Inlet's future rides on the outcome of Unocal's mid-April application seeking royalty relief under House Bill No. 207 for Platforms Dillon in Middle Ground Shoal field and Bruce in Granite Point field. The Royalty Relief bill, passed into law in June 1995, is designed to extend the life of marginally producing fields by improving their economic viability and creating incentives for capital investment.

Unocal is seeking a reduction from 12.5% royalty to 3% for Dillon and from 12.5% royalty to 9.5% for Bruce. The company in late June was providing the state more details about the application and anticipates a ruling later this year.

In supporting its Royalty Reduction Application, Unocal stated by granting royalty relief, the DNR will extend the life of the oil economy in Cook Inlet and that while it's impossible to know for sure how many years will be added, royalty relief has the potential to play a pivotal role in future drilling and production.

Cook Inlet oil industry is a major contributor to Alaska, Unocal said, accounting for 500 Kenai jobs, more than 75 Anchorage jobs and $5 million in annual property taxes. The industry has a significant infrastructure including 14 platforms, offshore pipelines and east and west pipelines to market, treatment facilities and tank farms.

The inlet has potential that has not been developed because of high risk and marginal economics and will not be developed without infrastructure, Unocal added. The company's vision for the inlet is more investment opportunities, maintenance of em- ployment, extended production, added resources and delayed abandonment of Cook Inlet oil infrastructure.

Royalty relief will encourage investment, accelerate recovery of capital investment, lower economic cutoff, and make marginal and higher risk investments attractive.

For the state, the company added, new investment will bring marginal well development, higher risk development and potential for additional royalty. Extended infrastructure life will bring additional property taxes and continued employment. Without royalty relief, Unocal charted Cook Inlet's production at approximately 5,000 b/d by 2004, or only about one-third of what production will be with royalty relief.

ARCO's outlook

ARCO Alaska Inc., since abandoning the Bufflehead wildcat drilled last year on the northern edge of Swanson River field as a dry hole, has taken a long look at the Cook Inlet basin.

"We reassessed our holdings," said Ken Thompson, ARCO Alaska's president. "We are currently in discussion with independents from the Lower 48 to consider exploration teams for new ideas and new concepts to determine future prospectivity of our large holdings there."

The Bufflehead well was the first for ARCO in the Cook Inlet sector since the abandonment in 1993 of two follow-up wildcats south of the Sunfish discovery well drilled in 1991.

In the wake of unsuccessful follow-up wells, ARCO described Sunfish as "not a commercial development for ARCO on a stand-alone basis" and announced it would not conduct further exploration or delineation activities on the prospect.

"We're still 60% owner," Thompson said of Sunfish. "We're currently in discussion with Phillips Petroleum for a possible trade of our acreage. We're also in discussion with other companies to farm out our interest in Sunfish."

Shell to sell

Shell Oil Co., whose involvement with Cook Inlet production goes back to the 1960s, has put its statewide producing properties up for sale, including Platforms A and C in Middle Ground Shoal field, an onshore processing facility near Nikiski, interest in Beluga River gas field on the west side of Cook Inlet, and a 0.1377% interest in Prudhoe Bay field.

In April, the Municipality of Anchorage made a $12.5 million down payment toward purchase of Shell's one-third interest in Beluga River gas field. The total bid price for Shell's interest is $125.1 million. A Municipality spokesman said that current contracts for gas expire in 2005, and acquisition of Shell's interest in Beluga River gas field would assure Municipality Light & Power-the Municipality-owned utility company-a long-term supply of gas while lowering costs to customers and stabilizing or reducing electricity rates for 30 years.

Beluga River field has produced 533.1 bcf of gas since discovery in December 1962 by Standard Oil Co. of California, now Chevron USA Inc. Estimated remaining reserves published by the Department of Natural Resources' Division of Oil & Gas are 488 bcf.

A Shell spokesman said the company has received offers on its Middle Ground Shoal production, including Platforms A and C, and the onshore processing facility near Nikiski but is deferring action while focusing on completion of the Beluga River sale.

Marathon exploring

Marathon Oil Co. opened an exploratory campaign targeting gas on the Kenai Peninsula in late February, spudding the 1 Corea Creek Federal, in 12-1n-13w, about three miles southwest of Clam Gulch. The directional well was programmed to bottom approximately 3,000 ft northwest of the surface location.

According to field sources, the well went to 9,000 ft. Testing began with no release of results. The surface drill site is about 11/4 miles southwest of the 1 Falls Creek Unit, completed in June 1961 by Standard of California, now Chevron, as the discovery well for Falls Creek gas field.

Standard in a joint venture with Richfield Oil Corp. took the well to 13,789 ft, plugging back to 8,594 ft for completion in the Tyonek formation. Initial production was 1.95 MMcfd of dry gas. The well proved the first and only completion for the field, which has remained shut in since completion of the discovery well.

Stewart to drill

Stewart Petroleum Co., Anchorage, before yearend plans to drill a deep exploratory well in the Cape Starich area of the Kenai Peninsula some 25 miles southwest of Falls Creek gas field and about 10 miles northwest of North Fork gas field. The high angle, long reach well will be drilled from an onshore pad to bottom under Cook Inlet waters. The proposed measured depth is 22,000 ft.

North Fork gas field was a December 1965 discovery by Standard Oil Co. of California's 41-35 North Fork Unit, in 35-4s-14w. The well was completed from redrilled depth of 10,859 ft after bottoming at total depth of 12,812 ft. Initial production was 3.37 MMcfd of gas from the Tyonek formation. The well has been shut in since completion.

Reserves, production

Since discovery of Swanson River field 39 years ago, the Cook Inlet basin's seven oil fields have produced 1.21 billion bbl of oil and 3.1 tcf of gas. Eight gas fields-Beluga River, Ivan River, Kenai, Lewis River, North Cook Inlet, Pretty Creek, Sterling, and Stump Lake-have produced 4.0 tcf of gas. Four more gas fields-Birch Hill, Falls Creek, North Fork, and West Foreland-have been shut in since discovery.

Estimated remaining reserves as published by the DNR's Division of Oil & Gas are 133 million bbl of oil, including 108 million bbl proven and developed and 25 million bbl proven but undeveloped or shut-in. Estimated gas reserves are 2,842 bcf, including 2,784 proven and developed and 58 proven but undeveloped or shut-in.

Cook Inlet leasing

A pair of sales-one state and another federal-has been proposed.

The state's Sale 85A (Cook Inlet Exempt) includes 226 tracts with an area of about 1.1 million acres. Upland tracts are generally located on the western side of the Kenai Peninsula between Pt. Possession and Anchor Point and Homer communities and on the west side of Cook Inlet between the Beluga River and Tuxedni Bay.

The proposed sale area also consists of state owned tide and submerged lands in central Cook Inlet and Redoubt, Trading, Tuxedni, and Chicaloon Bays. The sale is tentatively scheduled for Dec. 17, 1996, in Anchorage.

The U.S. Interior Department is deciding whether to hold OCS Sale 149, originally scheduled for June. The proposed sale is to include 385 blocks in Lower Cook Inlet covering approximately 1.8 million acres in offshore waters of the Iliamna, Seldovia, Mt. Katmai, Afognak, and Kenai areas.

A footnote to work on the Kenai Peninsula is an innovative leak detection system that Unocal successfully tested in Swanson River field.

Last year, a company team developed a plan to help minimize spills in the field. The team hired dogs-labradors and golden retrievers-to sniff for a non-toxic odorant-Esso's Tekscent-injected into the pipelines. The dogs proved successful in detecting leaks in weather from 40 below zero to 100 F. and leaks in up to 3 ft of snow or pipelines buried to depths of 12 ft.

Approximately 18 miles of Swanson River pipelines were inspected during a 2 week period. The dogs found two faulty valve box seals, which were replaced. The company is considering bringing the dogs back this summer but also is using an infrared system.