Companies hope to turn peninsula prospects into working wells

Aurora, Swift learn the drill

Posted: Friday, April 07, 2006

Drilling begins today 10 miles northwest of Homer in the first stage of what could become a major new oil and natural gas development push in the Cook Inlet Basin.

The project, dubbed “Endeavor 1” by the two Houston-based energy companies that announced the ambitious joint exploration venture one week ago, targets oil in the Lower Tyonek and Hemlock formations.

“This is by far the highest potential moneymaker for our company,” said Aurora Gas LLC’s President G. Scott Pfoff, whose company will operate the initial drilling phase of the project. “It could really take us to the next level as a company.”

About 25 people have been contracted by Aurora to get the well going, and the crew has mobilized equipment for the past week. Those contractors will be working for 30 to 60 days, and any expansion of operations would lead to the addition of Kenai Peninsula workers, Pfoff said.

“To the extent we expand our operations, our first priority is local hire,” he said.

The expansion possibilities are large. Swift Energy Company, whose investment made the push possible, has a 50 percent working interest in the Endeavor 1 well, and will earn an average working interest of 37.5 percent in the areas of mutual interest the project represents. Including Endeavor, those interests amount to six exploration prospects on both sides of Cook Inlet.

That half of those potential production sites are on the east side of the Inlet is a big step for Aurora, whose current production of 16 to 20 million cubic feet a day of natural gas is culled entirely from 12 wells in five fields on the west side of the inlet.

Options opened up for additional exploration in 2003 when Aurora acquired all the Cook Inlet lease holdings of Anadarko Petroleum Corp. Aurora then began seeking investors for an exploration and development partnership.

“We pretty much talked to a who’s who of the major producers,” Pfoff said.

Swift quickly carved out a name for itself among the list of possible prospecting partners by investing research dollars into the potential of the areas Aurora had acquired, Pfoff said.

“They emerged fairly quickly as one of the front runners,” he said.

According to Swift spokes-man Scott Espenshade, Cook Inlet’s resource potential fits the company’s strategy. The 27-year-old company has made a name for itself and money for its shareholders largely by the exploration of and investment in smaller, underdeveloped areas.

In the late 1980s, for example, Swift began drilling on 8,000 acres in south Texas, a project which has since expanded to cover 28,000 acres and produce 8 billion cubic feet a year of natural gas.

“Sometimes people know there’s opportunity there, but for some reason it isn’t pursued,” Espenshade said.

The same strategy, applied to potential resources in southern Louisiana in the late 1980s, led Swift to become the largest crude oil producer in that state in 2005, Espenshade said.

The Endeavor 1 is the beginning of such a strategy for the six sites currently identified as having potential, but Espenshade cautions against presumptions of success.

“Anytime you look at exploration, you see a one in eight to one in twelve success rate.”

The joint venture allows breathing room for near-misses, however, and success could lead to expansion into other sites beyond the identified six, Pfoff said.

“We’ve got at least six that we’ve identified as prospects, but that in no way limits us to those.”

Pfoff declined to identify where the other five sites are, saying Aurora has yet to decide how future exploration might play out.

Future expansion could also include Swift, which operates 96 percent of its drilling projects in the Lower 48, becoming a well operator. Espenshade said for the purposes of Endeavor 1, though, Aurora will be the operator.

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