Platform upgrade, North Slope improvements planned this year

Phillips invests for continued gas production

Posted: Saturday, April 22, 2000

Phillips Petroleum Co. plans a $30 million upgrade to its Tyonek Platform on Cook Inlet following renewal of its license to export liquefied natural gas to Japan.

Phillips converts natural gas from the Tyonek Platform into LNG at a plant it owns with Marathon Oil Co. in Nikiski. Phillips and Marathon ship LNG to Tokyo natural gas and electric utilities under a license that had been slated to expire in 2004. They recently won federal approval to continue the exports through 2009, though, and that makes improvements to the platform worthwhile.

Now, Phillips will spend $30 million to add two gas turbine-driven compressors to the platform, said Arnie Holhjem, Alaska regional manager for Phillips. The Tyonek Platform already has two compressors. The new ones will double its compressing power from 9,000 to 18,000 horsepower.

''They lower the wellhead pressure, so we can keep producing gas at a stable rate,'' he said. ''They essentially suck the gas out of the ground.''

Phillips operates the LNG plant and owns a 70 percent interest in the plant and in the ships that carry 1.1 million tons of LNG each year to Japan. Marathon owns the other 30 percent, and operates the ships. Phillips employs 41 people at the LNG plant and nine on the Tyonek Platform.

Jim Mulva, Phillips' chairman, chief executive and president, said the new compressors are already under construction and should be delivered to Kenai late next summer. Phillips hopes to barge them to the platform before winter and complete their installation by 2001.

That project will consume three-quarters of this year's $40 million Alaska capital budget, he said. The rest of the money will go for improvements on the North Slope, where Phillips plans to drill several wells in Prudhoe Bay satellite fields.

Phillips owns a 2 percent share of the Prudhoe Bay field, but owns between 10 and 35 percent of several satellite fields, Mulva said. That means its returns from investments in the satellites are far better than those from investments in Prudhoe Bay itself.

One project not in the 2000 capital budget is development of the Tyonek Deep oil prospect in Cook Inlet. Tyonek Deep, an Arco find, formerly was known as Sunfish.

Arco initially believed Sunfish held substantial quantities of oil, but later concluded it was too small to support independent development.

It struck a deal for Phillips to develop the find, hoping that would prove economically feasible from Phillips' existing Tyonek Platform. Phillips renamed the field Tyonek Deep and announced promising results from several delineation wells.

In January, though, Holhjem said Phillips has found no economical way to move Tyonek Deep oil. Because there is little other development now taking place on Cook Inlet, laying an oil pipeline from the platform to shore would require bringing a barge from the Gulf of Mexico.

''The lack of infrastructure is the biggest problem, particularly the lack of lay barges,'' he said. ''I certainly hope we can create some more momentum in the industry. I would like to see more things happen.''

More activity could make the equipment for prospects like Tyonek Deep cheaper and easier to find, he said. The new platform Forcenergy Inc. plans to install near West Foreland this summer would be a start. Holhjem said Forcenergy plans to pull pipelines to its platform from shore, rather than laying them from a barge. That method would not work for the Tyonek Platform because it lies too far offshore.

Holhjem said he is convinced there is more gas to find in Cook Inlet. Known reserves are adequate to meet present demand, he said, so there is little incentive to find new ones.

''But as soon as there is an incentive, I think people will do it,'' he said.

Mulva said Phillips plans to focus more of its capital on exploration and development to better compete in this age of mergers and mammoth oil companies. To further develop its gas gathering, chemicals, refining and marketing businesses, it will turn to joint ventures with other companies.

Phillips is pursuing exploration and development opportunities around the world. Holhjem said the company also sees long-term opportunities in Cook Inlet. If a natural gas line is built from the North Slope to Nikiski, he said, Phillips could expand the present LNG plant or integrate it with the larger plant that would be needed to export North Slope gas. Phillips may also explore for new Cook Inlet gas fields, he said.

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