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Changes come to Inlet's gas, oil outlook

Lisa Demer

Political leaders in Alaska have been concerned for years about tight natural gas supplies from Cook Inlet fields. Natural gas from Cook Inlet fuels the power plants that provide much of electricity for Southcentral Alaska, and it heats homes and businesses here. But over the past couple of years, focus has shifted to new exploration that some say is revitalizing the basin.

Daily News reporter Lisa Demer recently sat down with Bill Barron, director of the state Oil and Gas Division, and Paul Decker, the division's resource evaluation manager, to talk about Cook Inlet and some of the techniques being used there, including hydraulic fracturing, or fracking, which is common in Alaska but very controversial in the Lower 48. Barron is a petroleum engineer who took charge of the division in June 2011. Decker is a petroleum geologist.

Here are highlights, edited for length and clarity:

ADN: Is Cook Inlet undergoing an oil and gas boom?

Barron: A boom. I think what you're seeing in the Cook Inlet is an increased activity level both from a base level, historic-development scenario and an exploration effort. It's in both ends of the industrial spectrum. So it's good news for the Inlet.

ADN: What is driving it?

Barron: The Cook Inlet, while it is a mature basin -- a mature basin in the fact that it's been produced in one form or another since, gosh, 1957, with the discovery of Swanson River -- is also still a world-class basin that is reasonably unexplored. It is a basin that is close to infrastructure. It is a basin that is close to gas and/or oil markets. It's got exportabilities. And because of that there is a continued rejuvenation of interest in not only oil plays, but also gas plays.

Decker: If I could add just the technology aspects. There have been technological improvements both in exploration and in development and production that I think have changed the outlook in the industry.

ADN: Can you give a couple of the highlights?

Decker: An example in the exploration side would be the 3-D seismic technology. Large areas can be covered by very high quality seismic data now without some of the complicating factors introduced by all the cables they needed to use before. Now they have wireless devices that can be deployed much more successfully in a difficult environment like Cook Inlet.

ADN: A few years ago there were fears that Cook Inlet was running out of gas and we weren't going to have the energy to heat our homes in Southcentral. Where does that stand now?

Barron: Interesting dialogue relative to gas and gas marketing. The original major gas discovery in the Cook Inlet was the Kenai gas field. And the predominant zone of development is the Sterling. And the Sterling sandstone is very thick, very clean. It outcrops actually down near Homer. It's a wonderful world-class reservoir rock. It's very easy to produce. Because there was such a tremendous supply of that gas -- and it's wonderful gas, it's 98 to 99 percent methane, so there's very little processing that needs to take place for it -- that not only gave the commercial markets here locally a supply for homes and electrical power generation, it was also of sufficient quality and quantity to generate LNG export to Japan, and a chemical plant (which became the Agrium fertilizer plant.) Those two plants would not have been here if there had not been such a robust supply.

A lot of the easy gas had been found and now we're into finding the hard gas. What that translates to is you have to drill more wells. The completion techniques are more expensive.

Once there was a industry recognition that supply was beginning to get low again and the customers -- Enstar and the commercial markets -- saying that yes we understand there's got to be a price difference because you are chasing harder gas and you've got to drill more wells to find it, again there was an uptick in that development.

The supply is going to follow the demand and the demand is going to follow its counter, back and forth. And it's been doing that since 1957.

Decker: A lot of the dire predictions of two or three years ago were based on trying to answer the question, how much gas is left in the existing producing reservoirs that are already hooked up and on line. So they were making predictions about the future based on the assumption that no one would drill more wells. No one would find more oil.

So one of the things our division did at the end of 2009 was to look at the existing fields and say how much gas do we think is very likely still there if they were to drill additional wells or to re-complete additional intervals. Just that work alone introduces large volumes that we think are there in the basin relatively straightforward to get to.

And then you have oil exploration, gas exploration, above and beyond that. So we think there's a lot of resource left, various levels of certainty, but a lot of resource left in the basin.

Barron: The west side Cook Inlet is a very under-explored area, predominantly because of lack of infrastructure. It's a night and day situation, if you look at a map. The Kenai side is highly developed. It all goes back to road systems. How do you get people and equipment in out, and how's the access.

ADN: Is the crisis in gas supply then essentially abated for now?

Decker: I wouldn't say there was ever truly a crisis. But I think that we've had from various fronts, the introduction of new information that makes people believe we have time to solve these problems in a rational way. We don't want to act out of fear.

Barron: Let's be candid about this. The gas in the Cook Inlet is not like an oil market that can be exported quickly and reasonably. Companies are not going to explore and develop if they don't have a market. And all the supply contracts (for selling the gas) are under the RCA's control (the Regulatory Commission of Alaska). As soon as the contracts were about to expire, there was another surge in exploration and development efforts for gas. And the reason being is, it's very difficult to secure funds from a corporate entity if you don't have a place to sell it.

For oil, it's a different issue. You can market oil Outside or sell it to Tesoro or put it on a tanker and send it to another refinery.

Decker: Gas is very seasonally cyclical. The companies produce enough to meet consumption. I'm not sure I want to drill a well if I can only turn it on for the coldest weeks of the year. That was an issue in the past. To the extent that new gas storage reservoirs have come into play, that allows producers to say, 'Hey I'll have a market to sell that gas into even during the summer months.'

ADN: Is the storage reservoir being filled now?

Barron: Yes, it's being supplied right now

ADN: You've described the 3-D technology that allows the oil and gas to be found. What special techniques are needed to extract it?

Decker: Deviated drilling is key in the Inlet. We look for the minimum surface footprint. So depending on the configuration of some of these reservoirs, you also have a number of faulting issues that can compartmentalize the reservoir, break it up into a series of compartments. And so you need to tap each individual portion of the reservoir, whether it's isolated sands or whether it's isolated fault blocks. When you get deeper, some of the sands have been compacted and chemically altered to the point they don't yield flow as readily. So sometimes you have to consider various means of completing that well in a way that stimulates that production.

Barron: Which would including hydraulic fracturing.

Decker: Hydraulic fracturing has certainly been done for decades.

ADN: Can you describe the technique?

Barron: You are pumping down a well bore a volume of fluid that is then introduced to the sand phase in a manner which literally fractures the rock close to the well bore. These fractures do not migrate very far from the well bore because it takes a tremendous amount of energy to break the rock. (He described how the fractures are filled with either fine, rounded sand or a man-made material, to hold them open.) That is the avenue for the oil or gas to migrate from the reservoir into the well bore.

ADN: Why has fracking become so controversial in the Lower 48?

Barron: I really don't know why it has hit the press and the community as it has. Over 25 percent of all the wells in Alaska have been fracked. It is part and parcel maybe because a lot of the work in Ohio and New York and that part of the world is literally in people's backyards. You've got rather large equipment making a lot of noise. The water use could be an issue in some areas. How much water is used. But on the flip side of that there needs to be a dialogue on how much water is reused.

I think some of what is occurring now especially with shale exploration and development is just the magnitude. It's not that the technique is any different.

ADN: Does it cause earthquakes?

Decker: Simply breaking the rock is a miniscule, micro earthquake. That's all an earthquake is, is rock being allowed to slip underground against itself. It creates baby earthquakes, if you call them that. It creates recordable events, seismic events. But people need to understand how miniscule those are and how really non-threatening such miniscule events are.

ADN: Does it keep fracturing over time?

Decker: Absolutely not. It's the opposite.

Barron: Once you relieve the energy source, it closes on itself.

ADN: Has the state been able to confirm any new natural gas discoveries in Cook Inlet? There was a controversy over a find Escopeta Oil -- now called Furie Operating Alaska -- announced last year. Have you been able to confirm that?

Barron: These are exploration wells. By nature of them being exploration wells, they are confidential. If I've got information or if Oil and Gas Conservation Commission has information, we're not able to let that out.

ADN: How many new wells do you expect to be drilled in Cook Inlet this year?

Decker: We'd have to check on the latest permitting activity. Something in the order of 10 to 15 new oil and gas exploration wells in 2012.

ADN: All in Cook Inlet

Decker: Yes. But it's a very imprecise count. Companies often permit more locations than they can drill. They announce plans that end up changing.

Reach Lisa Demer at ldemer@adn.com or 257-4390.


By LISA DEMER
Anchorage Daily News