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Unocal pushing ahead on wells

Posted: Wednesday, March 24, 2004

Unocal is working fast to produce gas discovered at its Happy Valley test wells in Ninilchik and bring it to market on the Kenai Peninsula by the end of the year, a company official said Tuesday.

Ed Turner, gas development manager for the Happy Valley project, spoke before a small crowd at the Kenai Peninsula Chapter of The Alliance to update residents on progress at the company's newest natural gas project.

Unocal, which owns a partial share in the Falls Creek well in the Ninilchik unit, began exploring further gas development in the region in 2002.

"Unocal tried to take it to the next step, drilling exploratory wells, but failed completely," Turner said. "It's a risky business."

But, he said, though the company had spent about $10 million on the failed wells, it kept trying, discovering gas at an exploratory well called Happy Valley 1 late last year. The discovery was confirmed by a find at Happy Valley 2, and Unocal now is drilling four or five more test sites.

In the meantime, the company also is rushing development of the successful wells in order to meet the needs of the peninsula.

Turner explained that the need for traditional fuel sources such as coal, oil and gas is expected to increase 40 percent nationwide over the next 20 years. Locally, that increase isn't as dramatic, but the need still exists, he said.

Current research, however, indicates that local oil and gas companies will lose 30 percent of their ability to meet the need in the next four years alone, Turner said.

That coupled with a standing marketing contract with Enstar is pushing Unocal to develop its finds as quickly as possible. Abridging a process that often can take more than a year, Unocal is drilling more test wells at Happy Valley on the Deep Creek unit about six miles out Oilwell Road in Ninilchik while simultaneously conducting seismic research and working toward a gas pipeline extension that would bring the gas to market by connecting with the existing Kenai-Kachemak Pipeline.

"It's all happening in parallel, with the idea that by Nov. 1 of this year, gas will be flowing down the pipeline," Turner said.

The development of natural gas, both at the Happy Valley sites and others on the peninsula, is important to Unocal because of the declining productivity of oil development in Cook Inlet.

Unocal, which operates 10 platforms in the inlet, has produced about 900 billion barrels of oil there, Turner said. But while some production continues, it is a fading source of revenue.

"These assets are legacy assets," he said. "They're still good revenue, but at the $18 to $20 (per barrel) range, they're hard to keep going."

Natural gas, on the other hand, is a growing field with more production possibilities. And the Kenai Peninsula is in a unique situation with its market, he said.

"This is the first place I've been where the company I work for signs a contract with the company I pay my gas bill to," he said.

While discussion of North Slope gas development means a national and international market, Kenai Peninsula gas development directly impacts area residents.

"In reality, the gas we make on the Kenai Peninsula is heating our homes. It's a small circle," Turner said.

Making that small circle requires a lot of work, though, he said.

Working from a 350- by 500-foot clearing, Unocal is testing additional wells in search of more gas and preparing to start harvesting discovered resources. The company also will spend between $3 million and $4 million to build a facility in the area to develop the gas, as well as about $15 million for a 15-mile pipeline connection. At its peak this summer, the project likely will employ at least 150 people building the pipeline and working the wells.

"It's a gamble," he said. "We're front-loading a lot of spending, and we hope Mother Nature cooperates."

If she does, this could be just one in a number of developments toward more gas production on the peninsula, Turner said.

"We're hoping this is just step two in a multistep process."

CORRECTION:

Unocal's Cook Inlet-region oil fields have produce900 million barrels of oil.



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