Oil firm plans to stay in inlet

Marathon official seeks support for less red tape, more incentives

Posted: Thursday, October 17, 2002

Marathon Oil is committed to continuing natural gas exploration and development in Cook Inlet, but needs support from the community, Ben Schoffman, Ninilchik project manager for the company, told the Kenai Chamber of Commerce Wednesday.

"Whether you call it oil or gas, it's a roller coaster," Schoffman said of the industry. "We've been here for the long haul and it's our intention to continue activity in Cook Inlet."

Schoffman, speaking at the chamber's weekly luncheon meeting, outlined a number of projects on which Marathon Oil is currently working.

The company has drilled 23 gas wells since 1998, including six exploratory wells, all of which have been successful, Schoffman said. It also has increased capital spending around the inlet from about $11 million in 1998 to $35 million this year. Marathon is the largest supplier of natural gas to Anchorage and Kenai Peninsula area utility companies, he said.

And, he said, possibilities are still developing.

The biggest project the company is currently undertaking is the Ninilchik Unit. In January, Marathon Oil and Unocal announced the discovery of natural gas about one mile off the shore near Ninilchik. Since then, the companies have drilled two other successful exploratory wells, with a combined potential of 30 million cubic feet of gas per day between the three wells, Schoffman said. A fourth well also has been drilled, but results are not yet available, he said.

These wells are located about 30 miles from the existing gas transportation infrastructure and additional investment will be necessary to market this gas. The company, through Kenai Kachemak Pipeline LLC, plans to construct a 33-mile pipeline, 12 inches in diameter, to connect the wells to existing pipelines.

The project would be an open access pipeline, meaning that other companies could use it, for a price, to deliver natural gas to their customers.

For example, Schoffman said Enstar would have the option of branching off the pipeline to provide natural gas to residential customers.

Schoffman said that KKPL is working through the permitting process for the construction of the pipeline and, if all goes well, hopes to begin building in January 2003.

Schoffman also highlighted a number of other projects on Marathon Oil's agenda, including continuing gas production on the Kenai Gas Field, analysis of environmental impact reports for the Swanson River Satellites and potential exploration drilling two to three miles offshore near Kasilof.

All these projects, Schoffman said, bring a number of benefits to the peninsula and the state, including a product that supplies energy for heat and light, jobs and a stronger tax base.

However, he said, these projects are more risky than the sure-thing projects of past decades, and oil and gas companies need incentives to continue exploring in the area.

As he outlined his "Cook Inlet Recipe for Success," Schoffman said Alaska does offer resource opportunity, access to land and a market for gas.

But, he said, the state comes up short in terms of offering a reasonable permitting environment and investment incentive.

The current permitting process in Alaska requires a minimum of six to eight clearances, which is two to three times more than is required in the Lower 48, he said.

"We don't want to cause damage," he said. "That costs money. It's not profitable to make mistakes."

However, he said, it is almost impossible to meet every regulation at this point, because they are not consistent.

"There are numerous stakeholders with redundant, or even worse, contradictory requirements," he said. "A common sense understanding of the issues is critical."

He also said that there needs to be more responsibility on the part of regulators, so that jurisdiction is clear.

Kenai Mayor John Williams added to the thought, saying that the Alaska Conference of Mayors recently asked the Alaska Municipal League to begin a thorough review of the permitting process to make it less cumbersome.

He said that he believes a constitutional amendment is needed to create an elected position for a "regulations guru" who oversees all permitting regulations and has the power to veto those that are redundant, are against the spirit of the law or don't make sense.

Schoffman also said that oil and gas companies could use better incentives to continue work in Alaska.

Work in the state exposes companies to higher taxes in a higher cost environment and the work currently going on in the Cook Inlet region is higher risk.

"The pearls have already been found," he said.

"We're hunting around trying to find things. We're looking at projects that have been considered too risky in the past."

But though the Legislature has turned down requests for a tax incentive for companies undertaking high-risk exploration projects, Schoffman said Marathon Oil will continue to be committed to projects in the Cook Inlet area.

"Does the Cook Inlet market have everything that is required for a good recipe? No," he said.

But, he added, that doesn't mean Marathon Oil will go away.

"We want to do what we came here to do," he said.

There is room in Alaska for environmental protection, a quality way of life and rewarding industry opportunities, he said, asking the audience to get involved and make their concerns about the future of the gas industry known to the government.

"I hope you believe the same."

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