Marathon projects a 50 percent decline in its Alaska drilling

"The current market situation has forced companies to further prioritize capital programs. The Alaska region for Marathon is no exception," Carri Lockhart, Alaska production manager for the Houston-based company, said at an Alaska Support Industry Alliance meeting.

Lockhart anticipated "roughly a 40 to 60 percent" decline in producing wells this year.

Marathon completed nine wells last year, according to the Alaska Oil and Gas Conservation Commission. Lockhart said one of those wells was a dry hole.

Under the terms of a deal with the Palin administration, Marathon drilled five wells last year to get state backing of an extension to the export license for liquefied natural gas made at a Nikiski plant.

Marathon completed 11 wells in 2007, eight in 2006, 10 in 2005 and 14 in 2004. If the company drills four wells this year, it would be the fewest since 2000.

Marathon is the largest natural gas producer in Cook Inlet, producing about 140 million cubic feet per day, roughly 45 percent of the total Cook Inlet production, and supplying about 35 percent of the utility demands of Southcentral, Lockhart said.

The forecast of a decline in drilling comes amid concerns about natural gas supply and deliverability in the Southcentral area, home to more than half the population of Alaska.

Deliverability is the amount of natural gas a producer can call upon at any given time. It's driven not only by reserves, but also by reservoir pressure, storage and wells in operation.

This year, Marathon plans to continue "development in our major fields, Beaver Creek, Kenai gas field and Ninilchik," where the company drilled last year, and to further "efforts on a very exciting Sunrise exploration project" on Cook Inlet Region Inc. land inside the Kenai National Wildlife Refuge on the northern end of the Kenai Peninsula.

Marathon has been discussing the Sunrise prospect for several years.

Lockhart said Alaska must compete with other projects in Marathon's global portfolio.

Cash flow has become of greater importance in the current economy, a shift from five years ago when growth and new opportunities took a higher priority, she said.

"That's flip-flopped here over the past year. It's all about demonstrating positive cash flow," Lockhart said. "Projects in Alaska must compete with projects elsewhere."

Lockhart used her speech to highlight a change Marathon sees in Cook Inlet. "For many years, Alaskans have enjoyed unusually low natural gas prices and the market is thought to be isolated and disconnected from the broader effects of energy influences. But as supply and demand have tightened in this area, global influences are felt," Lockhart said, referring in part to the wild volatility in prices last year.

Cook Inlet natural gas discoveries came as a consequence of oil exploration, leading to an abundant supply for decades, despite a lack of exploration for new gas prospects.

Today, Lockhart said, "The outlook is quite different. A supply gap is lurching on the horizon and Cook Inlet is in a state of stress in terms of deliverability and demand."

Marathon sees drilling as a way to alleviate the problem.

Lockhart said 25 percent of Cook Inlet gas production comes from wells completed in the last three years, and half comes from wells drilled since 2000.