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Approved plan, default notice for Furie State says company failed to meet drilling commitment for 2017 but can cure default through new development plan for 2018 Alan Bailey Petroleum News
Alaska’s Division of Oil and Gas has issued a notice of default to Furie Operating Alaska LLC for the company’s failure to meet work commitments in the Kitchen Lights unit in 2017. However, the division has also approved Furie’s Kitchen Lights plan of development for the coming year and has said that the company can cure the default by meeting all of the drilling commitments in the new plan. Two well program As previously reported in Petroleum News, Furie’s new plan of development entails a two-well drilling program in 2018. The company has committed to complete the KLU No. A-1 development well in the Kitchen Lights gas field and either to drill and test a new development well into the Sterling formation, or to re-enter and deepen the existing KLU No. 4 exploration well, or to drill the KLU No. 6 exploration well to test for oil in the deep Jurassic.
A failure to cure the default by meeting the drilling commitments for 2018 may result in unit contraction or termination, the division told Furie.
Furie had planned to use the Randolf Yost jack-up drilling rig to complete the KLU No. A-1 well and to drill an exploration well into the Jurassic in 2017. In the event, the rig remained moored at in Nikiski for the duration of the drilling season. Furie later blamed the state for the hiatus in the company’s drilling program, saying that funding of the drilling depended on state tax credits owed to the company. The company also said that a standoff over the state budget during the summer had led to financial uncertainty, a situation undermining the financing of the company’s operations. By the time that the state’s budget issues had been resolved, the tugboat required for moving the jack-up rig had already had to leave the state, with no suitable alternative tug available, Furie said.
Gas production The Kitchen Lights gas field is producing from the Julius R offshore platform from two wells, the KLU No. 3, a converted exploration well, and the KLU No. A-2A well drilled in 2016. Gas from the field is transported by subsea pipeline to an onshore processing facility, from where it is output to the Kenai Peninsula gas transmission pipeline network.
Furie currently has a contract to supply gas to Homer Electric Association Inc. through the end of 2018, with options to extend the contract through the end of 2020. However, that contract only accounts for a portion of the production capability of the Kitchen Lights field.
Enstar contract In 2016 Furie also signed a gas supply agreement with Enstar Natural Gas Co. for the supply of gas, starting in 2018. That agreement was contingent on Furie completing a third Kitchen Lights development well by the end of 2016, with that drilling deadline later extended to July 31, 2017. The failure to drill in 2017 has resulted in a modified contract between Furie and Enstar, with Furie committing to complete the third well by July 31, 2018. Failure to meet the new drilling commitment will require Furie to provide proof of an alternative source of gas, as a contingency arrangement. And the failure to meet drilling deadlines also triggers a drop in the price to be paid by Enstar for the gas.
The state’s new notice of default comments that the latest delay in Kitchen Lights drilling comes after a history of delaying or changing work commitments going back to 2015. A commitment to drill two development wells in 2015 was deferred into 2016. In 2016 Furie drilled the KLU No. A-2 well, then drilling the KLU No. A-1 well to near target depth before running out of time to complete the well. As discussed in the notice, a new plan to complete the A-1 well and drill an additional well in 2017 did not go into effect.
- ALAN BAILEY
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