Producers 2024: AIX Energy closes out first decade in Alaska
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Small operator remains diligent and conservative at Kenai Loop field in Cook Inlet
Eric Lidji for Petroleum News
AIX Energy LLC marked 10 years in Alaska in 2024. In its first decade in the state, the independent company has sometimes behaved more like a Lower 48 operator.
Over the past 70 years, Alaska has become accustomed to an oil patch led by several large or midsize operators who pursue ongoing campaigns to develop large or midsize fields. And while that dynamic exists "outside" Alaska, too, the Lower 48 is also home to many smaller operators working to maintain daily profitability at small, marginal fields.
In its decade in Alaska so far, AIX Energy LLC has rarely conducted a development campaign, never drilled an exploration well, never farmed-out work and rarely traded assets. After an initial burst of acquisitions, it has rarely expanded its holdings. The private company doesn't issue press releases or holds investor conferences, preferring to speak through its required regulatory filings. For 10 years now, the company has been steadily focused on one simple goal: maintaining production to meet contracted demand.
In fact, AIX has been more likely to shrink than expand. Since taking over the field in 2014, the company has removed one well from service and forfeited two leases.
The approach is a stark contrast with its predecessor.
Australian independent Buccaneer Energy acquired the leases at the Kenai Loop field in late 2010 and early 2011. The acquisition was part of an ambitious strategy of growth, perpetually focused on new opportunities. These included many undeveloped properties, as well as interests in an offshore jack-up rig during basin-wide efforts in the 2000s and 2010s to expand offshore exploration in Cook Inlet and also an onshore drilling rig.
Buccaneer eventually became overextended. AIX Energy acquired Buccaneer's debt in April 2014. Buccaneer ultimately filed for bankruptcy protection in late May 2014, and AIX Energy was listed as the largest secured creditor. AIX Energy agreed to be a stalking-horse bidder, but those plans changed through the course of the bankruptcy proceedings. In an October 2014 bankruptcy auction, AIX acquired nearly all of Buccaneer's assets in Alaska with a $44 million credit bid (the process by which a creditor can bid the value of the debt it is owed against cash offers from other bidders).
Kenai Loop Kenai Loop was the most successful property in the Buccaneer portfolio throughout its tenure in Alaska. The company drilled four wells and commissioned a seismic survey.
Buccaneer drilled the KL 1-1 discovery well in April and May 2011 using the Glacier No. 1 rig. The 10,680-foot well tested at 10 million cubic feet per day in June 2011.
Ralph E. Davis Associates Inc. later estimated that the prospect contained some 31.5 billion cubic feet of natural gas and some 3.9 million barrels of oil equivalent in proven reserves. Buccaneer drilled the 11,000-foot KL 1-2 dry hole that fall. (The wells at the Kenai Loop field originally had a different naming convention but were later changed.)
Buccaneer brought the Kenai Loop field online in early 2012 and commissioned a 3D seismic survey over a 25-square-mile region to guide future drilling. Based on the results of the seismic survey, the company drilled the 13,000-foot KL 1-3 producer well in late 2012. The well flowed at 3 million cubic feet per day in January 2013. Buccaneer brought the KL 1-3 well online in February 2013 at 2 million cubic feet per day.
Buccaneer started drilling the 10,700-foot K-L 1-4 well in August 2013, targeting what "appears to be a fault separated from the current producing zones in the Kenai Loop No. 1-1 and Kenai Loop No. 1-3 wells," as the company explained during the drilling process. The well flowed at 5.9 million cubic feet per day during a test in October 2013.
Those final two wells came amid regulatory challenges. The Alaska Department of Natural Resources denied a request to unitize Kenai Loop, arguing that Buccaneer was using the process to preserve leases rather than maximize development. Buccaneer said that unitization would simplify operations in a crowded area with many landowners.
One of those landowners later accused Buccaneer of using the KL 1-4 well to drain resources from neighboring properties. The complaint drew the attention of other landowners, leading to legal complications that carried into the bankruptcy proceedings.
AIX work history In its first year as operator, AIX Energy resolved some outstanding issues from its predecessor and began evaluating some of the maintenance projects it could pursue.
AIX Energy quickly increased its leasehold nearly eight-fold to 8,882 acres in May 2016, up from 1,049 acres in April 2015 -- not counting Alaska Mental Health Trust leases.
It also focused considerable attention on contracts.
AIX Energy secured a short-term supply contract with Chugach Electric Association in late 2014 and resolved a pre-existing contract dispute with Cook Inlet Energy LLC in mid-2015. The company later secured a supply contract with Enstar Natural Gas Co.
Toward the end of 2015, Chugach Electric Association asked regulators to extend its existing natural gas supply agreement with AIX Energy by eight years, to March 31, 2024, with the possibility of an additional extension through March 31, 2029.
The flexible contract allowed the parties to negotiate sales on a case-by-case basis with a price cap rising by approximately 2% each year and volumes up to 3 billion cubic feet annually.
By early May 2017, AIX Energy had at least four supply contracts: a non-firm contract with Tesoro, a non-firm contract with an un-named company (likely Chugach Electric Association), a firm contract with Tesoro and a firm contract with Enstar Natural Gas Co. By that fall, AIX Energy had renewed its agreement with Enstar Natural Gas Co. through March 2021, calling for firm gas supplies that would increase slightly each year.
In an early 2022 filing, AIX Energy revealed it was selling its volumes exclusively to a single, unnamed purchaser under a one-year "Firm as Available" contract.
As these agreements were being negotiated and executed, AIX Energy was also reckoning with declining production at the aging field. In early 2019, in a bid to improve deliverability, AIX Energy commissioned a new compression facility at the field. The project appears to be the single largest investment the company has made at Kenai Loop.
Kenai Loop production began declining in 2016 and increased around 2018, leading to uncertainty around the long-term viability of the prospect. In its 2023 plan of development, AIX Energy stood behind its original gas in place estimate but asked to keep the figure confidential. Through the end of June 2024, the Kenai Loop field had produced 27.8 bcf, according to the Alaska Oil and Gas Conservation Commission.
Plans Its 10th plan of development, covering the year ending May 6, 2025, amounted to a single sentence: "AIX will focus on aligning gas sales with field deliverability." (At the time The Producers went to print, the state had yet to rule on this plan of development.)
In its ninth plan, ending May 2024, AIX Energy had "focused on obtaining reservoir information to better understand field reserves and deliverability, identifying operational efficiencies, maximizing gas sales, and maintaining a safe operating environment." As reported in previous plans, AIX Energy currently sells "all gas volumes to a single purchaser," under a three-year, "firm as available" contract approved April 1, 2023.
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