Legislature(2011 - 2012)BUTROVICH 205
03/21/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Cook Inlet Activities by Buccaneer Alaska, Llc | |
| Presentation: by Furie on Cook Inlet Activities | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 21, 2012
3:34 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Bert Stedman
Senator Lesil McGuire
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Cathy Giessel
Senator Fred Dyson
COMMITTEE CALENDAR
Presentation: Cook Inlet Activities by Buccaneer Alaska, LLC
- HEARD
Presentation: Cook Inlet Activities by Furie Operating Alaska,
LLC
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MARK LANDT, Vice President
Land and Business Development
Buccaneer Alaska, LLC
Houston, TX
POSITION STATEMENT: Discussed the announcement about Army Corps
of Engineer permitting on the National Petroleum Reserve-Alaska.
JIM WATT, President and Chief Operating Officer
Buccaneer Alaska, LLC
Houston, TX
POSITION STATEMENT: Gave presentation on Buccaneer's Cook Inlet
activities.
DAMON KADE, President
Furie Operating Alaska, LLC
League City, TX
POSITION STATEMENT: Gave presentation on Furie's Cook Inlet
activities.
ACTION NARRATIVE
3:34:45 PM
CO-CHAIR THOMAS WAGONER called the Senate Resources Standing
Committee meeting to order at 3:34 p.m. Present at the call to
order were Senators McGuire, Stevens, Wielechowski, Co-Chair
Paskvan and Co-Chair Wagoner.
^Presentation: Cook Inlet Activities by Buccaneer Alaska, LLC
Presentation: Cook Inlet Activities
by Buccaneer Alaska, LLC
3:35:40 PM
CO-CHAIR WAGONER invited Buccaneer to come to the table and
asked Mr. Landt to first discuss the announcement about the Army
Corps of Engineers permitting on the National Petroleum Reserve-
Alaska (NPR-A).
MARK LANDT, Vice President, Land and Business Development,
Buccaneer Alaska, LLC, explained that Buccaneer has an on-going
3D seismic program associated with their Kenai Loop discovery
and they had some activities in January in advance of the
permit. They have subsequently received that permit from the
Army Corps of Engineers saying there were no adverse impacts not
only from the preexisting activities but also from the future
activities. So Buccaneer is moving full-speed ahead.
3:37:52 PM
JIM WATT, President and Chief Operating Officer, Buccaneer
Alaska, LLC, Houston, TX, said he would talk about their current
activities and how things will move forward in the years to
come, although he couldn't give any assurances that any forward
looking statements would actually be achieved.
He stated their core focus areas are Alaska on-shore, off-shore
and the Endeavor jack-up rig; the company also has activities in
the Lower 48.
On-shore, he said, Buccaneer has 66,000 gross acres under lease
and they made the Kenai Loop discovery that is now under
development. They are shooting 3D there now and hope to move
forward by drilling three to four more wells this year. West
Nicolai Creek is another area on the west side of Cook Inlet
where they are focused on gas and hope to shoot a seismic
program later this year and drill a well next year.
Off-shore, Mr. Watt said, Buccaneer has 16,000 acres under lease
in two state units. Multi-paying horizons are close to
infrastructure there, a key to production of near-term gas. A
purchase sale agreement was recently made in the process of
acquiring Cosmopolitan from Pioneer Oil.
MR. WATT said they see the jack-up rig as a strategic asset for
both the Cook Inlet and the Chukchi Sea; it can operate in both
environments for not only Buccaneer, but other operators. It is
being upgraded in Singapore now, and will start working in
Alaska in June 2012; they plan on keeping the rig in Alaska for
the long term.
3:40:02 PM
In the Lower 48, Mr. Watt said, their prime upside is in the
Gulf of Mexico where they have operated for five years. They
also have an on-shore oil development in Lee County.
3:40:25 PM
MR. WATT said he wanted to cover the overview of Cook Inlet
development projects that include:
- Kenai Loop Onshore
-Cook Inlet offshore
-Jack-up acquisition
He said this means more jobs and a growing economy for the Kenai
Peninsula and energy security for Alaska. Buccaneer's progress
since opening offices (slide 4) was as follows:
-Spent over $25 million in the local economy
-Hired over 130 vendors and contractors
-Drilled two wells
-Completed purchasing Endeavor
-Discovered the Kenai Loop with about 50 bcf/gas
-Entered into a revolving credit facility based on ACES for $50
million
-25 square miles of 3D seismic shoot underway
-Entered into PSA with Pioneer to acquire Cosmopolitan leases
3:42:03 PM
He moved through Buccaneer's developments in Cook Inlet,
reviewing slides 5 and 6. The Kenai Loop is a proven success not
only in reserves, but also in the fact that they were able to
lease, permit and drill it in less than one year, which speaks
well in terms of Buccaneer working with the local community.
He said production began in January 2012 and some start up
challenges developed related to gas hydrates, because pressure
in the well was so high, but they worked through that and have
been producing about 5 mmcf/day for about 5 or 6 weeks. They
have a commitment to start delivering 5 mmcf/d to Enstar
starting April l. With additional drilling in May they hope to
ramp production up to 15 mmcf/d by October of this year.
3:44:19 PM
CO-CHAIR PASKVAN asked him to explain what "commitment volume up
to 31 bcf" meant on slide 6 and how that will change over time.
MR. WATT answered that at this point in time they have drilled
their first two wells and their reserve base - proved, developed
and producing - is 10 to 12 bcf/d. That is where their 5 mmcf/d
commitment is coming from. As additional wells are drilled, that
will go up incrementally to 15 mmcf, but reserves will go up as
well. So, they have committed selling 31 bcf to Enstar out of
the Kenai Loop Field. If the field has 50 bcf, 20 bcf is not
committed at this time he reported.
3:45:20 PM
Slide 7 showed Northwest Cook Inlet where Buccaneer has had
third party reserves in all their areas. Most of it is gas and
they see 200 to 300 bcf. They were committed to two wells this
year, but they have until 2014 to meet those commitments. They
are well along their way on permitting and it should all be in
place in 30 to 45 days.
Off-shore, Mr. Watt said, Southern Cross is being drilled with
the Endeavor jack-up rig. They have good 3D well control and 13
million barrels of oil with the possibility of another 27
million barrels. This area is primarily oil and they hope to
have both wells drilled by 2014. Buccaneer can easily drill a
couple wells a year.
3:46:57 PM
MR. WATT said back on-shore, West Nicolai Creek Field is a gas
opportunity close to infrastructure and close to Aurora's
Nicolai Creek Field. Buccaneer plans to drill and tie that
production back in that facility; so that area will have minimal
impact. They hope to shoot seismic this coming winter season and
drill a well in 2013.
He said West Eagle (slide 10) at 50,000 acres was their largest
acreage position. It could have over 100 bcf and 30 million
barrels of oil. It's about six miles east of the North Fork
Unit, so they could tie into that area. They have recently
acquired and reprocessed all the seismic for the entire area and
are looking to have their first prospect defined and drilled by
September 2012.
3:48:29 PM
Their most recent acquisition that they are hoping to close on
is the Cosmopolitan Field owned by Pioneer that primarily
focused on the oil potential (slide 11). It is located on the
southern part of the Kenai Peninsula. Off-shore Buccaneer will
have a 25 percent working interest with Blue Crest Energy, the
partner; Buccaneer will be the operator. The development plan
for both on-shore and off-shore is to bring the production to
the facilities that have already been built on shore.
The off-shore shallow gas will allow production into the Enstar
gas pipeline. When Pioneer was looking at developing this field,
they did it with highly deviated wells from on-shore. With a
jack-up rig they will be able to drill vertical wells, drill
through the gas column and hopefully prove it up; it is an area
they think could have up to 90 bcf of gas and gas that could be
produced in 18 months. They were planning to drill their first
well during the winter season of 2012 starting in November.
3:50:08 PM
SENATOR STEDMAN joined committee.
MR. WATT said they have a fairly aggressive timeline for the
Kenai Loop where up to four wells will be drilled this year.
Along with the on-shore developments in West Nicolai and West
Eagle, they will drill Southern Cross and Northwest Cook Inlet,
including the Cosmopolitan Field this year and into next year.
3:51:03 PM
He said the Endeavor jack-up rig is co-owned through Kenai
Offshore Ventures (KOV). It's owned 50/50 by Buccaneer Energy
and Ezion Holdings (Singapore listed). They hope to have the rig
ready for drilling activities in the Cook Inlet by early July.
It will be operated by Archer Drilling that operates over 100
rigs around the world. They work in hostile environments and are
performing rig modifications that are suitable to the
environment. Their safety record is very good.
3:52:24 PM
In closing, Mr. Watt said, the key for investment for Buccaneer
and other oil and gas companies is stable fiscal terms. That is
what will attract and retain capital investment. Long-term, they
look for increased drilling in Cook Inlet that will increase gas
reserves and gas production to the point of not only satisfying
the local Southcentral market but the Fairbanks market and the
potential to continue the LNG export with time.
SENATOR WIELECHOWSKI asked if Cook Inlet had enough gas to
sustain a gasline to Fairbanks over the long term.
MR. WATT replied yes; the USGS has estimated Cook Inlet has up
to 19 tcf/gas and that is more than enough gas to satisfy the
demand Fairbanks has over the long term.
3:54:20 PM
SENATOR FRENCH joined the committee.
3:54:38 PM
CO-CHAIR PASKVAN asked what an expansion of the market does in a
pragmatic way to Buccaneer if they want to continue exploring.
MR. WATT answered one concern is that they will find too much
gas, especially with the two jack-up rigs. Cook Inlet has
historically been a gas stranded basin and it has taken decades
for that to turn around. Once the local market of 50-75 mmcf/day
is satisfied, additional markets will need to be found if more
discoveries are made.
SENATOR DYSON joined the committee.
SENATOR WIELECHOWSKI asked if a gas pipeline were to be built
from the North Slope to Cook Inlet, would that help or hurt
exploration prospects in Cook Inlet or have no impact.
MR. WATT replied if that would happen over the next 18 months,
it would have a major impact to the Cook Inlet. He saw the
pipeline from the North Slope as being at least a 6 to 10 year
type project. In the near term, the focus should be to explore
and find gas in Cook Inlet, but the overall view should be that
there is room for both.
CO-CHAIR WAGONER asked what water depth the Endeavor can go to.
MR. WATT replied that the rig is classed to drill in 300 ft. of
water. He explained that this rig was selected because the
deepest water in Cook Inlet is 300 ft. The rig was also selected
so it can cantilever over all the platforms in the Cook Inlet.
CO-CHAIR WAGONER asked with that 300 ft. depth available, if
Buccaneer had any plans for the federal sale that will happen in
the southern part of the Inlet in the near future.
MR. WATT answered Buccaneer has looked at all the opportunities
in the Cook Inlet, including federal waters.
3:58:33 PM
SENATOR FRENCH said he spent five years on platform A and
probably painted it.
CO-CHAIR PASKVAN asked, assuming that only half of the USGS
estimate of 19 tcf comes to fruition, how many decades that
would supply local homes and businesses.
MR. WATT answered that was "a bit of a hypothetical," but the
way to look at it was that the cumulative production in Cook
Inlet is 8 tcf/gas, so if you discover 9 tcf/gas, you have at
least 40 years or more of production. A lot of that 8 tcf
actually was exported, so it's decades of gas for the local
market - if it's the only market.
4:00:11 PM
CO-CHAIR WAGONER asked what the west side needs in order to
encourage more exploration activity - in the way of docks,
airport and roads.
MR. WATT replied that one recommendation is a road along the
west side. Logistics is a high cost factor in general in Alaska,
but there in particular.
CO-CHAIR WAGONER asked his thoughts on a bill in the legislature
giving the jack-up rig credit to the rig operator and not the
owner.
MR. WATT answered when the original special credits bill came
out, they were surprised that a jack up rig would be uniquely
qualified to drill the special credit wells as opposed to any
jack up rig, because they are really giving the owner of the
jack up rig, being a service company or whomever, that benefit.
The credits obviously need to be driven by the operator in Cook
Inlet and not by the rig owner.
CO-CHAIR WAGONER thanked him for making this presentation,
saying to keep in mind this is just the start of what is
happening in Cook Inlet.
4:03:34 PM
At ease from 4:03 to 4:04 p.m.
^Presentation: by Furie on Cook Inlet Activities
Presentation: Cook Inlet Activities
by Furie Operating Alaska LLC
4:04:46 PM
CO-CHAIR WAGONER said the committee would next have a
presentation by Furie on its activities in Cook Inlet.
DAMON KADE, President, Furie Operating Alaska, LLC (formerly
Escopeta Oil Company), League City, Texas, said he had been with
company since December 2011. Last year they brought the Spartan
151 jack-up rig into Cook Inlet, the first jack-up rig since the
early 90s. They plan exploration and development of the Kitchen
Lights Unit (KLU) in 2012-2015.
Spartan 151 was brought into Cook Inlet in 2011 and Kitchen
Lights Unit 1 was spudded and made it down to 8,805 ft. before
it was suspended for the 2012 season. They did various tests
that show a potential 30 mmcf/d in the shallow gas formations.
It is contracted through February 2013 with two one-year
options. They are planning on using it for their plan of
exploration through 2015. He said underwater acoustic
measurements were also completed during the drilling activities
to ensure protection for Beluga whales within the critical
habitat area.
SENATOR FRENCH said he remembered an announcement about the KLU
discovery that came with some excitement and then some comment
on it by the Alaska Oil and Gas Conservation Commission (AOGCC).
4:08:51 PM
MR. KADE responded that several publications made announcements
about gas, but since he became president of the company, he sees
750 bcf over the life of that area using the P50. He explained
that "P90" is proven, "P50" is probable and "P10" is possible.
SENATOR FRENCH asked if that worked out to 30 mmcf/d - given the
size of the reservoir.
MR. KADE answered yes. It is a about 32,000 acres, a portion of
the overall KLU, which is 83,000 acres.
4:10:22 PM
He listed the goals of their 2012 business plan as:
- Safety first
- Developing the supply base within the Kenai Nikiski area
- Promoting job growth within the communities of operations
- Continued commitment to environmental stewardship
4:12:35 PM
He summarized their business plan for 2012-2015 saying Furie is
in the final stages of obtaining their unit extension through
the Department of Natural Resources (DNR). They plan to build
two wells with the Spartan 151 this year and they are going to
reenter KLU 1 and drill down to the pretertiary and spud KLU 2
also targeting pretertiary drilling and logging. Both wells are
within the Corsair Block, and their target is to prove out those
reserves by the end of the year using various third parties.
4:13:05 PM
CO-CHAIR PASKVAN asked him to clarify for the public what depth
"pretertiary" is.
MR. KADE answered that those depths will vary depending on where
one is in the Inlet. For example, their target is 16,500 ft. for
pretertiary, but based on geology it could be 500 ft. less in
some cases. Some of Buccaneer's pretertiary prospects are around
11,500 ft.
He said they would target permitting development wells in 2013.
To do that, they will set a platform in place to tie in those
wells on the surface. They will also begin planning for the
pipelines and platforms, which have a lengthy permitting
process. They are moving forward financially with engineering of
the monopod (a platform) and pipelines for potential 2013
production. To do that, they obviously need to have marketing
agreements in place and a path for their pipelines to do these
permits with the Corps. If all goes well, they will begin
fabrication of the platform in the August/September 2013
timeframe.
MR. KADE related that Furie plans to mobilize a rig again in
mid-April as soon as the ice clears up and then do soil boring
at both KLU 1 and 2 sites for engineering purposes for the
monopod platform structure. They plan to log and do soil tests
from May until mid-October when they will suspend the KLU well
and winter stack the rig until next April.
4:16:20 PM
Furie's strategic plan covers the next four years (based upon
their plan of exploration submitted to the DNR that is pending).
Their plan of exploration covers five exploratory wells: two in
the Corsair and three in the other three exploratory blocks.
Their new plan of exploration has four drilling blocks. Their
plan allows them to do development drilling as soon as 2013,
pending federal permitting.
4:17:13 PM
MR. KADE showed the KLU that is now split into four exploration
blocks with the DNR commissioner's approval on slide 13. The
Corsair block is where KLU 1 and 2 are going to be drilled; the
Central block has proposed KLU 3 and the Southwest block has
proposed KLU 4 and 5. They will propose a KLU 6 in the northern
block eventually. All five of the wells are permitted at this
point.
4:18:27 PM
Slides 14 and 15 detailed their drilling and production program
in a four-year timeline format as follows:
2012
-Drill two exploratory wells and conduct soil boring for future
platforms
-Obtain unit extension from the DNR for KLU
-Obtain permits for 2013 infrastructure (platforms/pipeline
projects and completion of first well)
2013
-Drill one exploratory well in North, Southwest or Central block
-Set platform "A" at KLU 1 or KLU 2 site if logs permit
-Install pipeline to production facility or platform
-Perform completion on KLU 1 or KLU 2 if logs permit
-First planned production by December 2013, pending permitting
2014
-Drill 1 exploratory well in 1 of 2 remaining undrilled KLU
blocks
-Drill 1 development well and complete
-Bring 2nd well into production
2015
-Drill 1 exploratory well in remaining undrilled KLU block
-Drill 1 development well and complete
-Bring 3rd well to production
MR. KADE said the best route for a pipeline in the KLU is going
to the south and east to the facilities in the West Foreland
areas. However, they could also go to the west depending on what
kind of agreement is reached in terms of selling hydrocarbons.
4:22:00 PM
CO-CHAIR PASKVAN advanced some of the same questions the
committee asked before: What will increased proven reserves in
Cook Inlet and expansion of the natural gas market in Alaska
mean to a company like Furie and its intention to continue to
explore.
MR. KADE answered that Cook Inlet has quite a bit of
infrastructure, but additional pipeline is needed to get the gas
to Fairbanks. From a sheer mileage point of view, it's a lot
shorter from Cook Inlet to Fairbanks. Their field is very strong
from a natural gas point of view. Just their 8,800 ft. well has
about 750 bcf over a 30-year time period. They think the well
has stronger reserves deeper down and that is why they are
reentering last year's well and going down to 16,000 ft.,
pretertiary depths. Furie would really be interested in reaching
out to Fairbanks.
CO-CHAIR WAGONER asked about the possibility of oil in their
total unit.
MR. KADE replied they think there is some solid oil as they get
deeper, especially in the West Foreland formation, at about
15,500 ft. and that is based on their seismic. He explained that
Furie purchased 2D seismic and is reprocessing it right now.
They used high-collapse casing in the two wells that are being
drilled this year, so they are capable of producing oil as well
as gas. Their plan is to have four gas wells and two oil wells
per monopod.
CO-CHAIR WAGONER thanked them for testifying today.
4:25:01 PM
CO-CHAIR PASKVAN asked how much Furie will spend on its 2012/15
plan and what will be spent on future activities.
MR. KADE answered that the wells cost $25 to 30 million apiece
to drill. There are additional costs, like for stacking the rigs
in the winter time, which adds up to about $80 million. If they
put in production in 2013, another $50 to $65 million can be
added. In 2014, once a platform and a pipeline to a production
facility are in place, those costs go back down to the $70 to 80
million range for two wells a year. As Buccaneer and others come
into the area, those costs should start to drop downwards as
infrastructure builds up in the Kenai and Nikiski area - and as
service providers start to invest capital in that area. One
example is they have two boats right now because of all the
tidal movement and the movement of casing, pipe and drill
cuttings on and off the rig. But they think they can leverage
some operational synergies with other operators where maybe they
can charter a boat - a third, a third, a third - with somebody
instead of having to shoulder the costs alone.
CO-CHAIR PASKVAN noted the positive nods behind him.
4:27:28 PM
CO-CHAIR WAGONER adjourned the Senate Resources Standing
Committee meeting at 4:27 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Senate Resources Buccaneer March 21.pdf |
SRES 3/21/2012 3:30:00 PM |
Buccaneer Presentation |
| Furie of Alaska Company Overview 3-21-2012.pdf |
SRES 3/21/2012 3:30:00 PM |
Furie Presentation |
| new page 11 buccaneer v.2.pdf |
SRES 3/21/2012 3:30:00 PM |
Buccaneer Presentation |