Oil, gas companies eye southern Kenai

Now it's poised to become a hatchery.

When Armstrong Cook Inlet brings its North Fork oil and gas project into production early next year, it could be the push needed to bring several other prospects in the region into development.

The southern Kenai is one of the more underdeveloped corners of the Cook Inlet basin, which supplies the natural gas that heats and powers more than half the state's population.

Despite oil and gas exploration in the region in the 1960s, development never took off like it did on the west side of Cook Inlet or the northern half of the Kenai Peninsula. The past 15 years, though, have brought renewed interest to the southern Kenai, but development remained stalled until Denver-based Armstrong Oil and Gas acquired leases in 2007.

Armstrong drilled a well in 2008 and the results were good enough for the company to sign an agreement last year to sell production to Enstar Natural Gas Co.

Now Armstrong is pressing ahead on development.

In mid-August, the company moved a rig to a North Fork Unit pad to clean and flow test the well that Standard Oil of California drilled in 1965. That well Armstrong plans to make its first producer in the unit.

Once the work on the old well is done, Armstrong plans to move the rig back to the main pad at North Fork to drill two development wells, Alan Dennis of the state Division of Oil and Gas told Anchorage Mayor Dan Sullivan's Energy Task Force this month.

Armstrong is nearing construction on a 7.4-mile pipeline to bring its natural gas to market. The pipeline would connect to a planned extension of the Kenai Kachemak Pipeline just outside Anchor Point.

IS COSMO NEXT?

Once in place, that new pipeline system would put natural gas transportation infrastructure within a few miles of Pioneer Natural Resources' Cosmopolitan field.

Although Cosmopolitan is primarily an oil prospect, the field also has some natural gas. Dennis wouldn't quantify the gas potential but said, "There's a substantial amount of gas."

Pennzoil discovered the prospect in 1967 and Conoco Phillips formed the Cosmopolitan unit in 2001 but neither company pursued development.

Pioneer acquired the prospect in 2006 and in 2007.

Pioneer has proposed a development plan that would bring Cosmopolitan into production by 2014 but one of the biggest obstacles is figuring out how to market the oil and gas it would produce.

One idea is to truck crude oil to the Tesoro refinery 75 miles north in Kenai but that option would leave the gas stranded unless Pioneer builds a pipeline.

The Kenai Kachemak Pipeline extension could keep Pioneer from having to build a major pipeline.

"Once they have a place to put their gas, this project could happen," Dennis said.

TWO MORE PROSPECTS

The new infrastructure presents opportunities for other development.

Dennis noted that newcomer Buccaneer Alaska out of Australia is talking about exploring its West Eagle prospect east of Nikolaevsk. It envisions a possible 12-well development program with eventual production of 30 million cubic feet a day of gas and 2,000 barrels a day of oil.

Chevron has the Nikolaevsk unit, currently stalled as the oil company appeals a February decision by the state to reject its development plan.

Any sizable gas discovery could prompt construction of a pipeline to Homer, 10 miles south of North Fork. Homer residents now use oil products for heating.