NorthStar planning to drill second gas well in 2004

NorthStar Energy Group Inc. plans to drill another well in early 2004 in its North Fork gas field in the southern Kenai Peninsula.

The small independent, based in Tulsa, Okla., recently signed a contract to supply gas to Enstar Natural Gas Co. of Anchorage.

NorthStar says it will build a six-to-eight inch gas line eight miles to Anchor Point to connect with a four-inch pipeline Enstar will build to Homer, according to Barry Foote, the company's executive vice president and one of its owners. The pipeline from the North Fork field will be sized large enough to also supply gas to other markets, he said.

Under terms of the deal with Enstar, NorthStar must drill the additional well and prove there are sufficient reserves to supply peak day demand requirements.

Enstar will hire an independent petroleum engineering firm to certify there are sufficient reserves to serve the contract for 20 years, and that each of two production wells planned can supply that volume in the event one fails, according to an Enstar press release.

NorthStar would not indicate the volume of gas to be delivered under the contract or price terms, but Foote said the Enstar contract pricing mechanism is similar to what the utility agreed to in a contract with Unocal Corp.

Foote said NorthStar also now believes it has sufficient reserves at North Fork to send gas north toward Kenai and Anchorage, and plans a 23-mile pipeline from Anchor Point to connect with a new 12-inch pipeline being built from Kenai to Ninilchik that is nearing completion.

Enstar is building the Kenai-Ninilchik pipeline on behalf of Marathon Oil Co. and Unocal Corp., which have discovered new gas reserves near Ninilchik.

NorthStar has been doing tests on one well drilled at North Fork in the 1960s that had shows of oil as well as gas. Because there was no market for gas at the time, the well was shut in for lack of market.

There are multiple sands with production potential in the well and two have been tested, Foote said. He believes the second well will be successful, also.

Based on its work so far, NorthStar believes there are prospects for "large or extremely large" new gas discoveries in the southern Kenai Peninsula, Foote said.

"It's certainly enough to get our interest," he said.

NorthStar holds between 35,000 and 40,000 acres of state and federal oil and gas leases on the east and west sides of Cook Inlet, about half of which is covered by the North Fork Unit.

Included in the acreage is another prospect the company is interested in, which it calls the "Ninilchik Dome," Foote said.

The company has not yet committed to a drilling contractor for the 2004 well, but is talking with established contractors in the area such as Nabors Alaska Drilling and Inlet Drilling, Foote said.

There is also a possibility NorthStar will bring its own rig up to the Kenai, he said. "We think this is a sufficiently large, long-term play, to the point that it would be good for us to have control over our drilling," Foote said.

NorthStar controls about 80 percent of the leases in the areas the company is interested in, he said.

Former governor and Interior Secretary Walter Hickel owns a small overriding royalty interest in one of the prospects.

New York businessman Sam Nappi has been working on the North Fork project for about eight years. He and his company have invested several million dollars in the project. Foote, a partner with Nappi in other business ventures, became involved with NorthStar two years ago, he said.

NorthStar is also looking at acquiring Lower 48 oil and gas properties and is negotiating an acquisition of a producing asset now, Foote said. He declined to identify the possible acquisition.

The company has seven full-time employees, all of them in the Lower 48, and recently opened an office in Anchorage. When the North Fork project moves into development, NorthStar will most likely open a small office in Homer, Foote said.

"The Enstar contract is very important to us because it establishes NorthStar as a player here," he said. Supplying gas to Homer is just the beginning for the company, he said.

Tim Bradner is a reporter for the Oil & Gas Reporter and Alaska Journal of Commerce.