Furie readies to drill in northern Cook Inlet

Residents and visitors to Nikiski might notice a new silhouette on the skyline of Cook Inlet as the Randolph Yost jack-up rig moves into the neighborhood.

The tall legs of the rig can be seen from the bluff in Nikiski. The rig is situated in the Kitchen Lights Unit, leased by Furie Operating Alaska. Furie has brought the rig to Alaska specifically to drill additional gas wells, and is currently planning to drill up two this year.

The jack-up rig has been docked in Homer for the last two months, and shipped out for the northern part of Cook Inlet on May 5. However, it won’t be ready to drill until roughly a month from now, around the second week of June, said Bruce Webb, Furie’s vice president. The rig still has to be outfitted, crewed, stocked, arranged and run through some preliminary tests, he said.

The rig will drill two new producing wells close to the currently producing well. The reservoir of gas is centrally located — by regulation, producers are not allowed to drill new wells within 3,000 feet of an existing well. Furie had to file for an exception to the regulation, which is mostly like “checking regulatory boxes,” Webb said. Some companies will file for pool rules on a field, allowing them to operate without having to file for exceptions each time they make a new move, but Furie does not plan to file for pool rules, Webb said.

“We’re a small platform and the reservoir is pretty centrally located,” Webb said. “Going for pool rules is a little bigger exercise than we are … planning.”

Furie is only producing natural gas and has signed contracts with Enstar Natural Gas Co. and Homer Electric Association. With the two new wells drilled this year, the company should be able to fill its contracts until 2019 or 2020, when the market opens again, Webb said. The company plans to continue drilling exploration wells in the intervening years, though, he said.

“The current permits we have out are up to two permits (to drill wells) every year for five years,” Webb said. “That’s just in case we have time to drill more than one every year. It’s easier to permit two and drill one rather than permit one and want to drill two.”

One factor that could provide an outlet for more gas from Furie would be the restart of the Agrium fertilizer plant in Nikiski that closed in 2007. The Alaska Legislature recently approved a bill that would grant a tax credit to urea, ammonia and gas-to-liquid products, which would benefit Agrium with a payment equal to the percentage of the amount of royalties paid on natural gas from a state lease that is delivered to the plant to use.

The tax credit would remain budget neutral by balancing the deferred tax revenue from the credit with income from royalty payments made by the gas supplier. Agrium is in talks with the gas suppliers in Cook Inlet about potential deals, as previously reported by the Clarion.

However, Agrium would also have to spend a certain amount before obtaining that credit, said Larry Persily, the special assistant for oil and gas in Kenai Peninsula Borough Mayor Mike Navarre’s office. The gas supplier would have to provide a competitive price to Agrium to entice the company to reopen the plant, he said.

“Agrium restarting is going to depend on finding a gas supplier who can guarantee them five years, 10 years of supply at an affordable price, and that price is going to have to be less than what Southcentral utilities are paying,” Persily said. “They’re going to have to hope that someone strikes a big reservoir and says, ‘OK, I can give you a lower price if you sign a long-term contract and buy a lot.’”

The other factor in play is the future of the oil and gas tax credits in the state. The Legislature is still in discussions about whether to cut down the tax credit program, and if so, how that might look. Webb said Furie is not dependent on the tax credits, but they do accelerate the pace of development.

“You can accelerate faster when you have a AAA rated partner (like the state of Alaska) with you,” Webb said. “If the tax credits go away, that just means we’ll slow down.”

 

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.

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