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Weekly UpdatesThere is a lot of oil and gas left in Cook Inlet. Geologists are convinced of this. But how do we get at it?
Dan Seamount, the geologist commissioner at the Alaska Oil and Gas Conservation Commission, thinks a lot of oil lies undiscovered in deeply buried rocks in Cook Inlet below the existing producing fields.
These are believed to be the source rocks from which oil seeped up to accumulate in the shallower Cook Inlet fields that have been discovered. They have never been thoroughly tested by explorers, however, for a lot of reasons.
Seamount believes it's mainly because Cook Inlet's development was interrupted by the big discoveries on the North Slope in 1968 and 1969. "It was like the lights got turned off," he said. Basically, industry never went back to exploring the Inlet.
The lights are coming back on, however. With advanced new technologies available and high prices for both oil and natural gas, companies are turning their attention to the Inlet once again and they're now quite optimistic, though there are a lot of uncertainties.
One of the most bullish firms these days is Chevron USA, which purchased Cook Inlet's aging oil production platforms and other assets of Unocal, the previous owner, in 2005.
Chevron now has a $200 million program under way for Cook Inlet, aimed at finding new oil as well as gas. The company aims to refurbish the production platforms, find ways of squeezing more oil out of 30-year-old producing fields, and explore for new oil as well. Chevron thinks oil might be found by deep test wells drilled from the platforms and also in small accumulations at the edges of the large fields that were bypassed earlier.
MORE OPTIMISM
Another company that is optimistic about oil in Cook Inlet is Pioneer Natural Resources Inc., a major independent company that is a partner with ConocoPhillips in Cosmopolitan, an oil discovery near Anchor Point. Early production tests on the discovery were inconclusive as to whether it can be produced, but Pioneer, which has taken over management of the project, plans to drill a new exploration well later this year to run further tests, according to Tadd Owens, Pioneer's Alaska spokesman.
NORTH SLOPE FINDS AFFECT COOK INLET
Seamount said the big North Slope discoveries in the late 1960s came just after Cook Inlet's large fields in the Inlet went into production, drawing industry away at a critical time and interrupting what would have been an orderly, staged development of the Cook Inlet basin, said Seamount.
"The next stages would have been to drill deeper wells and to explore for the more subtle, complex kinds of geologic plays, such as stratigraphic traps," he said.
The risk is not that the deep oil is there--geologists are confident it is--but the uncertainty is whether the rocks at those depths have the right combinations of porosity and permeability to allow the oil to flow to a producing well, Seamount says. The only way to find out is to drill a deep exploration well, he says.
Also, the exploration seismic technology available to the Inlet's early explorers in the 1960s was unable to spot subtle, more complex, types of oil-bearing formations, Seamount said. The easy-to-find large formations, of the type geologists label "structural" traps, were found, but more subtle kinds of formations, which geologists refer to as "stratigraphic traps," were missed.
There are now newer generations of seismic technology available, capable of detecting these kinds of formations. Some of them might be large, too.
INFRASTRUCTURE WOES
Lack of infrastructure is also an impediment. The problems is how to reach prospects in deeper waters of the Inlet, since there are no mobile drill structures available, like a jack-up rig or a drill-ship.
Exploration wells can be drilled directionally from platforms to a radius of 3 miles or so and they can be directionally drilled from shore for about the same distance, but there are many prospects and even known oil accumulations that are too far from either platforms or shore. A number of companies with offshore leases are working to bring a jack-up rig to Cook Inlet, but it is very expensive and the efforts have been unsuccessful thus far.
Seamount says there are known oil accumulations that are undeveloped, particularly in one area near the North Kenai gas field and the Middle Ground Shoal oil field that has never been adequately tested. Wells were drilled and oil was found but there was inadequate production testing. Much of the acreage over one prospect area has now been acquired by Rutter and Wilbanks, a Texas-based independent company that is working with other companies to bring a jack-up rig to the Inlet.
PROMISE OF HOPE?
The picture for natural gas is of immediate interest to residents of Southcentral Alaska given the rapidly rising gas prices in the region. Large, prolific gas fields were found in Cook Inlet in the 1960s largely as a side effect of exploration for oil, as the two are often found in the same types of rocks.
There wasn't much of a local market for the gas in the 1960s, and although companies developed innovative ways to commercialize the gas, such as building the liquefied natural gas and fertilizer plants that exist today. But there was a still large surplus or natural gas, which meant that for many years Southcentral Alaska enjoyed some of the lowest gas prices in the nation. However, that also meant there was virtually no exploration for gas for many years.
But now the once-prolific gas fields are now being depleted and populations in Southcentral Alaska have grown, increasing the demand for gas for home-heating and generation of electricity. The result of reduced supply and greater demand is a higher price. Although higher rates are now being charged by the regional utility, Enstar Natural Gas Co., gas prices are still a bargain compared to what most Americans pay.
As with oil, there's more gas to be discovered in Southcentral Alaska. Scott Jepsen, who is in charge of ConocoPhillips' south Alaska interests, is convinced of that. ConocoPhillips and Marathon Oil Co., its partner in the Kenai liquefied natural gas plant, recently applied for a two-year extension of a federal export license to export liquefied gas, or LNG. The two companies believe more gas can be found in the area, and Jepsen doesn't rule out applications for further extensions to the plant's license if exploration is successful.
Jepsen said ConocoPhillips itself intends to drill more development wells in the North Kenai gas field if the export permit is granted. The North Kenai field supplies the LNG plant, but its gas is available to local utilities in an emergency, Jepsen says. That means any new gas added to the field, even though intended for sale to Japan, is also a cushion for local consumers.
WHAT ABOUT RESERVES?
How much gas is left in the Cook Inlet basin? In their application to the Department of Energy, ConocoPhillips and Marathon have submitted estimates of 1.726 trillion cubic feet of "proven and probable" reserves, about a nine-year supply for the region if consumption patterns don't change.
Other estimates generally agree with this. The state Department of Natural Resources, which does its own estimates of remaining reserves, estimates that there are 1.648 trillion cubic feet of gas left in existing fields.
Proven reserves are those in existing fields which are confirmed by drilling, and with a high degree of confidence that they can actually be produced. Probable reserves are those in existing fields that can likely be added by additional drilling and other in-field development work. The confidence level is never as high in probable reserves as proven, but with the data companies have on their producing fields they have good reasons to believe those reserves can be added when the need is there. A nine-year ready supply of gas is a reasonable cushion and it is about the point where industry begins exploring, Jepsen points out.
For 15 years prior to 2001, there had been no exploration for gas because gas was still in such a surplus that new gas couldn't be sold. But when the reserves-to-production dropped to about a nine-year supply in 2001, companies started drilling.
"Since 2001 there have been 75 exploration and development wells drilled for gas. Assuming, with each well costing between $3 million and $5 million, this represents an investment of $200 million to $300 million just in drilling. When other kinds of investments are added, like compression, roads, pads, facilities, the figure easily gets to $500 million," Jepsen said.
New gas discovered has just about replaced what has been produced and consumed in recent years. The U.S. DOE estimated that 240 billion cubic feet of new gas was discovered between 2004 and 2006, which comes close to replacement.
A key point Jepsen makes is that probable gas reserves and even gas discovered through exploration will always be a bit of a moving target because the industry will not spend money proving up additional gas in producing fields or finding brand gas fields until companies know the gas can be sold. "You're not going to spend money to find new gas if you can't sell it for 15 to 20 years," Jepsen says.
ConocoPhillips' North Kenai gas field is a case in point. The company estimates that in 2009, if the LNG plant closes when its permit expires, there will be 120 million to 150 million cubic feet a day of surplus production capacity for which the company has no market. An obvious solution is to extend the permit for the LNG plant for two years, so the gas can be sold.
There is a lot of potential for new gas. In a 2004 study the U.S. Department of Energy estimated that about 15 trillion cubic feet of additional conventional gas resources could be produced in the Cook Inlet region. It won't be cheap to find and develop this gas, however, and some of the best potential lies in areas that are closed to development or at least highly restricted, such as the Kenai National Wildlife Refuge on the Kenai Peninsula.
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