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New cash flow from an old field.

Everybody's agog about Arco's 750-million barrel Cook Inlet find. But Arco and Unocal already have plans to develop other inlet fields.

While it may be premature to declare an oil renaissance in the Cook Inlet, it's not too early to say work planned by Unocal and Arco Alaska alone could more than triple current production by the turn of the century. And the likelihood of future discoveries -- plus Arco's announcement that its Sunfish field may contain as much as 750 million barrels in gross oil reserves -- could push the total much higher.

In fact, Pam Parks, Arco's exploration manager for southern Alaska, speaking before Arco's April announcement, said it was "certainly within the range of possibilities" that Cook Inlet -- on the oil decline for years -- could again yield rates of 200,000 barrels a day attained during its peak 23 years ago.

"Our view of the Inlet is that it may contain very significant undiscovered reserves. We would rank it in the top five U.S. basins," Parks said.

Kevin Tabler, Unocal's Alaska land manager, says, "We feel there is a lot more oil to be recovered. We're going to concentrate and focus all of our effort and manpower in the inlet reevaluating our existing fields."

A few years ago, industry observers had all but written off the inlet, predicting the early shutdown of many aging fields that were over 90 percent depleted of their reserves. Companies were far more interested in the North Slope, a region that now produces a quarter of the U.S. domestic crude oil and 44 times the amount of oil extracted from the inlet.

The North Slope will remain Alaska's oil capital for years to come. But new technologies, new geological concepts and relatively low development and transportation costs led some explorers to believe Cook Inlet was worth another visit.

Says Parks, "Where most productive basins in the U.S. have undergone multiple cycles of exploration, Cook Inlet has undergone only one. The current activity may mark the beginning of its second cycle."

Based on plans announced by Arco and Unocal, it's conceivable that their efforts alone could push current daily production from 40,000 barrels about 140,000 barrels by the year 2000, helping to stabilize the inlet's waning oil and gas industry.

While Arco was grabbing headlines over its new Sunfish discovery -- the first in the inlet in a quarter century -- Unocal was quietly searching for ways to extract more oil from its producing Chakachatna properties in the declining Granite Point and Middle Ground Shoal fields. Unocal is the largest producer in the Cook Inlet, operating eight of the 14 offshore platforms.

In late January, Unocal announced plans to invest $119 million to develop "significant" additional oil reserves from its Baker and Dillon platforms at Middle Ground Shoal and from its Anna and Bruce at Granite Point.

The project's initial phase calls for drilling 20 new development wells, which are expected to increase daily production from the four platforms from 4,000 barrels to about 11,000 barrels. Unocal says additional development work planned after the first phase could boost production by another 7,000 barrels a day.

The Chakachatna project will apply the same geophysical concepts and drilling techniques -- known as extended-reach drilling -- that proved successful last year at Unocal's Granite Point platform where the company was able to double production. Plans call for the drilling of 12 more wells from that platform over the next four years, an effort that's expected to generate another 7,000 barrels of crude oil a day.

Unocal now says its current and future development plans should eventually boost the company's total Cook Inlet oil production from 19,000 barrels a day to over 40,000 barrels a day, using extended-reach and horizontal drilling methods, new technologies to the inlet.

Says Unocal's Tabler, "We think there are other fields to be found, but our focus now is enhancement of our producing properties. We haven't really exploited those fields. That's where the immediate cash flow is ... which will help bring in the capital for additional exploration down the road."

Arco's development plans for its Sunfish prospect are less definite, but based on 750 million barrels of preliminary reserve, estimates call for five offshore platforms and 150 wells, producing about 100,000 barrels a day.

Just prior to the January announcement that Sunfish was a commercial field, Arco and partner Phillips Petroleum shelled out an unprecedented $65 million for state oil and gas leases flanking the prospect, leading industry speculators to believe Arco was onto something big -- perhaps as much as a billion barrels of crude.

Arco says its next round of Cook Inlet exploration will focus on those recently acquired leases. Adds Parks, "The play concepts will be very similar to Sunfish."

In Sunfish's case, Arco apparently uncovered significant oil-bearing sands deep within the structure -- pay dirt that had been overlooked in earlier rounds of drilling.

Parks explains that the bypassed oil zone was found with a high-tech approach that combined formation analysis, detailed log work, log analysis and stratigraphic modeling. "This model gives Arco a more positive view of reservoir distribution than the classical view held by most of our competitors," she notes.

Even with the barrage of good news, however, state resource officials remain cautiously optimistic about the inlet's future, pointing out that development plans by Unocal and Arco are subject to change, depending on the success of initial development drilling.

Says Bill Van Dyke, petroleum manager for the state's Division of Oil & Gas, "It's good news, but it's no guarantee of Cook Inlet's rebirth. Even if Cook Inlet production doubles from what it is today, we still have a long way to go to reach 200,000 barrels a day."

Because of the limited number of existing fields with additional reserve potential, it's also thought new oil-bearing structures may have to be found to return inlet production to its heyday. "If it's the traditional play, I'm less excited," says Ken Boyd, deputy director of the state oil and gas division.

Regardless of the region's future oil potential, however, at least one unresolved political issue could serve to dampen the inlet's recovery -- oil and gas properties claimed by Alaska's Mental Health Trust.

The land trust was established by the federal government during territorial days to help provide for the mental health needs of Alaska's people.

After statehood in 1959, however, the state took over the lands, disbursing much of them over the years to various government programs. In 1982, mental health groups filed suit against the state to restore trust lands. And two years ago, the legislature passed a bill that provided the framework to "reconstitute" the trust and ultimately to settle the lawsuit.

Last year, the trust staked a claim on 140,200 acres of state oil and gas leases in the inlet, casting a legal cloud over ownership and leaving Unocal and other producers concerned about their future in the inlet. Cook Inlet leases are currently managed by the state Department of Natural Resources (DNR), a public agency.

"The biggest concern we have is the administration of those leases," Tabler says. "We bought our leases under a certain set of rules and conditions. DNR's focus is to protect the rights of the public. The Mental Health trustees would operate and govern them as a private concern, to maximize revenues to that entity. When you change the owner, you change the rules in the middle of the game."

While Unocal's participation in lease sales could hinge on the outcome of the Mental Health Trust issue, Tabler says, the company remains optimistic about the inlet's production future.

He adds that work planned in Cook Inlet by Unocal isn't expected to increase employment but should help to stabilize an industry that's experienced gut-wrenching cutbacks during the past few years.

"We had to look very seriously about whether we even wanted to stay in this area or go somewhere else. We've chosen to stay," says Tabler.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Arco Alaska Inc.'s Cook Inlet oil field
Author:Tyson, Ray
Publication:Alaska Business Monthly
Date:May 1, 1993
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