Exploration, expansion in Marathon's future

Posted: Saturday, March 02, 2002

With two large projects started at the end of 2001 and continuing into the new year, Marathon Oil has a busy year to look forward to.

"There are a few things I am pretty proud of in 2001. It is hard to boil it down to just one," said John Barnes, Marathon Alaska business unit manager. "As notable as the initial production from the Wolf Lake field is, what I am most proud of is how this fits into Marathon's overall long-term plan for the Cook Inlet."

The Wolf Lake project is part of an overall strategy to find, develop and introduce additional reserves into the already existing Cook Inlet natural gas production infrastructure and market, said Barnes.

Marathon, based in Houston, Texas, is one of the inlet's top producers of natural gas, with production in 2001 totaling between 200 and 210 million cubic feet. The bulk of the gas is sold to the liquefied natural gas plant it owns with Phillips Petroleum Co., Barnes said. Marathon also supplies around 85 percent of Enstar Natural Gas Co.'s demand and also supplies Chugach Electric Association.

Marathon Alaska at a glance

Company headquarters: Houston, Texas

Division manager: John Barnes

Number of employees: 25 in Kenai, 50 statewide

Production for 2001: 200-210 million cubic feet of gas

Local contact: 564-6484

Web site: www.marathonoil.com

Company outlook: Marathon plans to continue gas exploration on the southern Kenai Peninsula in order to move ahead with construction of a natural gas pipeline. It will also continue drilling operations at Wolf Lake in the Kenai National Wildlife Refuge.

The company had to wait on cool weather before progressing with its efforts in the Kenai National Wildlife Refuge. On Nov. 17, Marathon began its first natural gas production from the Wolf Lake Field in KNWR, and the pipeline project was completed in the early spring of 2001. Marathon continues to evaluate drilling operations at Wolf Lake for 2002.

"Any plans will be commensurate with natural gas market demand," Barnes said.

In 2001, Marathon completed drilling operations on eight wells. Six were successful, and results on the other two explorations wells are not yet available, he said. That is a one-well increase from the seven drilled in 2000.

Also revealing the company's continued exploration and expansion in the area is the commitment to between $30 and $40 million in capital spending for Cook Inlet in 2002. The company's budget in 2001 was $22 million -- $8 million less than what it plans to spend in the inlet this year.

"A significant portion of Marathon's capital spending next year in Alaska will be directed toward increasing natural gas resources that can be produced through the new pipeline," said Barnes referring to a pipeline that Marathon and Unocal plan to build connecting the southern Kenai Peninsula to a natural gas supply.

In 2001, the two companies united to form Kenai Kachemak Pipeline LLC, which will be the primary developer in the transmission pipeline.

The two companies announced a discovery Jan. 22 of substantial reserves that will push them forward toward the eventual construction of the pipeline. The Grassim Oskolkoff No. 1 well, the first exploration well drilled jointly by the two companies, has been estimated to have the ability to produce 90 billion cubic feet of gross proven recoverable gas reserves.

Current timelines call for the first phase of the pipeline between the Ninilchik area and Kenai gas fields to be operational by late 2003.

Marathon already has three wells completed on the peninsula that are ready to go into operation. Barnes said one of those ventures is a second well, Grassim Oskolkoff No. 2, at the joint site in Ninilchik. He said two more southern peninsula sites -- the Susan Dionne well and the Falls Creek well -- that were drilled during the 1960s, have been refurbished and were completed at the end of 2001.

"The Ninilchik discovery, together with our recent Wolf Lake production coming online, demonstrates Marathon's continuing commitment to the Cook Inlet natural gas market," Barnes said. "The year 2002 should be an exciting year as Marathon moves into its third year of continuous rig activity with the Glacier No. 1 drilling rig."

Marathon unveiled the mobile drilling rig in 2000. It was specifically designed for the peninsula to leave a smaller footprint, which translates into a smaller drilling pad and less environmental impact at the drilling site.

"The exciting thing about 2002 is that it will be a continuation of the success Marathon has had over the last several years of increased activity."

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