Anchorage firm to reopen Nikolai Creek gas field

Posted: Wednesday, July 12, 2000

A small Anchorage company plans to invest up to $12 million to reopen a dormant gas field at Nikolai Creek in western Cook Inlet.

Aurora Gas LLC, an Alaska corporation with offices in Anchorage and Houston, acquired a 50 percent interest in the Nikolai Creek Unit from Marathon Oil Co. on Jan. 1, said spokesman J.E. "Ed" Jones. It acquired the remaining 50 percent from Unocal on June 30.

It now is applying for permits to redevelop the field beginning this fall. Jones said he expects little difficulty in obtaining permits since the field previously has been in production. If development succeeds, Aurora will import modest facilities on skids to remove water from the gas.

It will build about two miles of pipeline from the wells to processing facilities Unocal operates at Granite Point. There, it will compress the gas for injection into the existing Cook Inlet pipeline system and sale to customers in Anchorage. Jones said Unocal has agreed to make its Granite Point facilities available. Aurora still is seeking an agreement with Exxon-Mobile, Unocal's partner at Granite Point.

Jones said the Nikolai field originally was developed by Texaco in the late 1960s. There are three existing wells, all of which produced gas. Texaco used that to fuel its offshore operations. In 1977, though, the wells were shut in. Unocal and Marathon bought their interests in the field from Texaco and Superior Oil Co. Superior since has been purchased by Mobil, which in turn merged with Exxon.

"We believe that one well, while suspended, was killed with drilling mud," Jones said. "We believe we can clean that out and restore production."

For that, Aurora may use coiled tubing, which comes on a large spool and is forced down the well.

A more expensive option is to import a rig and redrill the well. Depending on how Aurora proceeds, restoring that well should cost less than $1 million, he said. He hopes for initial production of 1 million to 3 million cubic feet per day. That work should begin this fall.

Jones said the other two existing wells may need to be redrilled to tap more favorable regions of the reservoir. Meanwhile, Aurora has seismic information that suggests there may be an untapped pocket of natural gas between two of the existing wells. Next year, Aurora likely will redrill one of the existing wells and drill one or two new wells, Jones said. If that work succeeds, in 2002, it likely will redrill the third existing well and drill at least one more new well.

"We believe we could fully develop the field with five to seven wells for $10 million to $12 million," he said.

Present proved reserves for the Nikolai Creek Unit total 15 billion cubic feet, he said. Drilling into the previously untapped pocket could boost the total to 30 billion cubic feet. Jones said half the production is under contract for sale to the Alaska Nitrogen Products fertilizer plant in Nikiski. Aurora Power Resources Inc. likely would buy the rest. Anchorage-based Aurora Power and Orion Resources LLC, of Houston, each own 50 percent of Aurora Gas. Jones and A.C. "Andy" Clifford, former vice presidents of BHP Petroleum in Houston, each own 50 percent of Orion.

Aurora Power, a privately held corporation, buys Cook Inlet natural gas and sells it to customers in Anchorage.

"We believe the economy to be attractive. We're a new player in the area," Jones said. "Aurora Power has an ongoing gas market and is interested in getting their own reserves behind their sales. This would do that."

Aurora Gas owns a 100 percent interest in the Nikolai Creek Unit, the bulk of which lies onshore. However, Aurora's purchases from Unocal and Marathon extend to the offshore portion of the broader Nikolai Creek field. Phillips Petroleum Co. holds a 50 percent interest in many of the offshore tracts. Including the offshore tracts, Aurora Gas has interests in about 8,000 acres at Nikolai Creek and in a total of about 10,000 acres around Cook Inlet, Jones said. Its holdings include prospects on the Kenai Peninsula just east of the Kenai Gas field.

Jones said the company has no plans yet for development beyond the Nikolai Creek Unit.

"We're looking at other things," he said. "My partner is an explorationist. He's up there now for just that purpose. There's a state sale and a Mental Health Trust sale later this year. We're looking into participating."

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