RDC’s 23rd Annual Conference Presentations
G. Scott Pfoff, President, Aurora Power & Gas, Houston, TX
INTRODUCTION
GOOD AFTERNOON AND THANK YOU FOR THAT INTRODUCTION. AND THANK YOU, RESOURCE DEVELOPMENT COUNCIL FOR ALLOWING ME TO SPEND A FEW MINUTES TALKING ABOUT AURORA.
AS YOU PROBABLY FIGURED OUT FROM THAT INTRODUCTION, AURORA ISN’T JUST ONE COMPANY, THERE ARE THREE AURORA’S…AURORA POWER, AURORA GAS, AND AURORA WELL SERVICE. ALL THREE COMPANIES ARE PRIVIATELY HELD, WE HAVE SOME COMMON OWNERSHIP, WE SHARE OFFICES, PERSONNEL, AND EVEN A LOGO…. BUT MOST IMPORTANT OF ALL, WE SHARE A COMMON GOAL…. RESOURCE DEVELOPMENT IN ALASKA.
AURORA POWER IS A NATURAL GAS MARKETING COMPANY, WE BUY AND SELL NATURAL GAS. AURORA POWER HAS BEEN OPERATING IN SOUTHCENTRAL ALASKA SINCE 1994, AND TODAY IS EASILY THE LARGEST MARKETER OF NATURAL GAS TO LARGE COMMERCIAL CUSTOMERS SUCH AS OFFICE BUILDINGS, SCHOOLS, HOSPITALS AND HOTELS.
WE CURRENTLY SUPPLY GAS TO OVER 1000 LOCATIONS, FROM AS FAR NORTH AS THE MAT-SU VALLEY TO AS FAR SOUTH AS KENAI-SOLDOTNA. BY THE WAY, SINCE YOU WALKED INTO THIS HOTEL, YOU HAVE BEEN KEPT WARM WITH GAS SUPPLIED BY AURORA.
THE CUMULATIVE REVENUE OF AURORA POWER IS WELL OVER 100 MILLION DOLLARS, AND IN OUR EIGHT YEARS OF EXISTENCE, AURORA HAS BOUGHT AND SOLD APPROXIMATELY FIFTY BILLION CUBIC FEET OF NATURAL GAS; SAVING OUR CUSTOMERS MILLIONS OF DOLLARS IN THE PROCESS.
THIS TRANSLATES TO A MARKET SHARE OF ABOUT 5%, HOWEVER, WHEN YOU ALLOW FOR THE FACT THAT OVER 60% OF DAILY PRODUCTION IS EXPORTED, IN THE FORM OF LNG OR FERTILIZER, AURORA HAS A HEALTHY 15-20% OF THE LOCAL MARKET. AND IN OUR CORE MARKET, THE LARGE COMMERCIAL SECTOR, AURORA HAS A COMMANDING MARKET SHARE OF 55%.
AURORA GAS WAS FORMED TWO YEARS AGO SPECIFICALLY TO PURSUE E&P OPPORTUNITIES IN COOK INLET.
BY MID-YEAR 2000, AURORA GAS HAD ACQUIRED 100% WORKING INTEREST THE NICOLAI CREEK GAS FIELD ON THE WEST SIDE OF COOK INLET. WE SUBSEQUENTLY RE-ENTERED THE NCU#3 WELL AND RETURNED IT TO PRODUCTION…. SOME TWENTY YEARS AFTER IT WAS SHUT-IN BY TEXACO. THE WEST SIDE OF COOK INLET IS NOT THE NORTH SLOPE, BUT IT IS REMOTE AND CAN BE A HARSH ENVIRONMENT IN WHICH TO WORK, JUST ABOUT EVERYTHING MUST BE FLOWN OR BARGED INTO THE LOCATION.
BUT WE TAKE PRIDE IN OUR OPERATIONS AND AS YOU CAN SEE FROM OUR WELLHOUSE BUILIDING AND OUR COMPRESSOR BUILDING, WE AREN’T BRINGING A POOR-BOY OPERATION INTO COOK INLET. BUT, WE SURE DON’T WANT GOLD PLATED EQUIPMENT EITHER…REDUCING THE COST OF OPERATIONS IN COOK INLET WILL BE ESSENTIAL TO OUR SUCCESS.
ACCESS TO INFASTRUCTURE IS ALSO CRITICAL TO THE FUTURE DEVELOPMENT OF RESERVES IN COOK INLET. TO GET OUR NICOLAI CREEK GAS TO MARKET, WE LAID OVER ONE MILE OF GATHERING LINE AND TIED INTO THE MARATHON AND UNOCAL OWNED COOK INLET GAS GATHERING SYSTEM (CIGGS), THIS FACILITATED GETTING OUR PRODUCTION ACROSS COOK INLET TO MARKETS ON THE EAST SIDE.
A FIELD THE SIZE OF NICOLAI CREEK COULD NEVER JUSTIFY THE COST OF A NEW PIPELINE UNDER OR AROUND THE INLET. THE SAME WILL BE TRUE FOR THE DOZENS IF NOT HUNDREDS OF SMALLER FIELDS YET TO BE DISCOVERED AND DEVELOPED IN COOK INLET.
BY BRINGING NICOLAI CREEK ONTO PRODUCTION, AURORA GAS BECAME ONE OF ONLY SIX COMPANIES WITH OPERATED PRODUCTION IN COOK INLET. AS YOU CAN SEE, WE ARE AMONG SOME PRETTY GOOD COMPANY.
HAVING PROVED THAT SHALLOW GAS SANDS ON THE WEST SIDE COULD BE TECHNICALLY AND ECONOMICALLY DEVELOPED, WE SET OUT TO RAISE THE CAPITAL NECESSARY TO IMPLEMENT AMBITIOUS PLANS. WE SOUGHT OUT AN INDUSTRY PARTNER THAT COULD RECOGNIZE, AS DID WE, THE UNIQUE POTENTIAL IN COOK INLET. WE WERE SUCESSFUL, AND IN MAY OF THIS YEAR, AURORA GAS ANNOUNCED A $25 MILLION DOLLAR PRIVATE EQUITY PLACEMENT WITH KAISER FRANCIS OIL COMPANY, OF TULSA OKLAHOMA. OUR NEW PARTNER IS A MULTI-BILLION DOLLAR COMPANY THAT SHARES OUR EXCITEMENT ABOUT THE COOK INLET BASIN AND HAS MADE IT CLEAR TO US THAT ADDITIONAL CAPITAL CAN BE MADE AVAILABLE SHOULD THE RIGHT OPPORTUNITIES PRESENT THEMSELVES.
AFTER CLOSING THIS TRANSACTION, AURORA WASTED NO TIME PUTTING THE FUNDS TO WORK. IN JULY OF THIS YEAR, AURORA GAS COMMENCED OPERATIONS ON THE NEXT PHASE OF DEVELOPING THE NICOLAI CREEK GAS FIELD. WE RE-ENTERED THE NCU #2 WELL AND RECOMPLETED IT TO NEW PAY IDENTIFIED BY LOG ANALYSIS. WE SUBSEQUENTLY RE-ENTERED AND SIDETRACKED THE NCU #1 WELL TO NEW PAY. AND I AM VERY PLEASED TO ANNOUNCE TODAY THAT THESE TWO WELLS HAVE TESTED A COMBINED FLOW RATE OF ABOUT SEVEN MILLION CUBIC FEET PER DAY. THE ABSOLUTE OPEN FLOW POTENTIAL OF JUST THE NUMBER 2 WELL EXCEEDS 16 MILLION CUBIC FEET PER DAY.
TO THE NORTHEAST OF NICOLAI CREEK, AURORA RECENTLY CONSUMATED THE PURCHASE OF THE MOQUAWKIE AREA ASSETS, INCLUDING THE LONE CREEK #1 WELL, FROM CONOCO PHILLIPS. DRILLED BY ANADARKO AND ARCO ALASKA (NOW CONOCOPHILLIPS) IN 1998, THE LONE CREEK #1 WELL TESTED OVER TEN MILLION CUBIC FEET PER DAY.
CURRENTLY, WE ARE DILIGENTLY PURSUING THE INSTALLATION OF A SIX-MILE GATHERING LINE TO TIE THIS WELL TO THE MARATHON OPERATED BELUGA PIPELINE AND COMMENCE SALES TO ENSTAR NATURAL GAS COMPANY.
WE HAVE ALSO ENTERED INTO A PURCHASE AND SALE AGREEMENT WITH ANADARKO PETROLEUM COMPANY TO ACQUIRE THEIR ENTIRE COOK INLET LEASEHOLD POSITION. ASSUMING THE SUCESSFUL CONSUMATION OF THIS TRANSACTION, AURORA WILL HAVE EXPLORATION AND PRODUCTION RIGHTS TO ABOUT 100,000 ACRES IN COOK INLET, MAKING US ONE OF THE TOP COOK INLET LEASEHOLDERS.
I AM GOING TO ASK EVERYONE WITH PHOTOGRAPHIC MEMORY TO CLOSE YOUR EYES FOR THE NEXT SLIDE, BUT TO GIVE THE REST OF YOU A FEEL FOR THE TREMENDOUS POTENTIAL WE SEE IN THIS AREA, HERE ARE THE OVER FIFTY “PROSPECTS AND LEADS” WE HAVE ALREADY IDENTIFIED IN WHAT WE CALL THE MOQUAWKIE AREA. THE CHALLENGE FOR AURORA WILL BE TO PRIORITIZE THE NUMEROUS OPPORTUNITIES WE HAVE IDENTIFIED.
TO ASSIST US IN THIS REGARD, A SIESMIC PROGRAM IS PLANNED FOR BOTH SIDES OF THE INLET, HOPEFULLY STARTING AS EARLY AS THIS COMING MARCH. ARMED WITH INFORMATION GAINED FROM OUR SEISMIC AND THE PRODUCTION HISTORY ON THE WELLS WE PLAN TO PUT ON IN THE FIRST QUARTER, WE WILL BE ABLE TO DECIDE WHICH PROSPECTS TO TACKLE FIRST. NEXT SUMMER IS SHAPING UP TO BE A VERY BUSY TIME FOR US.
IT HAS BEEN QUITE A CHALLENGE, BUT AURORA GAS IS NOW UNIQUELY POSITIONED TO MAKE A SIGNFICANT CONTRIBUTION TO THE NATURAL GAS NEEDS OF SOUTHCENTRAL ALASKA.
AURORA WELL SERVICE IS THE NEWEST AURORA COMPANY. FORMED IN EARLY 2002, AURORA WELL SERVICE PARTNERED WITH BOELENS WELL SERVICE OUT OF THERMOPOLIS, WYOMING, OVERHAULED AND EQUIPED A FRANK’S 300 SERIES WELL SERVICE UNIT AND TRANSPORTED IT TO ALASKA IN JUNE. THIS EQUIPMENT IS UNIQUELY SUITED FOR RE-ENTRY WORK ON EXISTING WELLS, AND IS ALSO CAPABLE OF DRILLING NEW WELLS.
ALTHOUGH AURORA GAS HAS ENOUGH WORK TO KEEP THE “AWS #1” RIG PRETTY BUSY OVER THE NEXT SEVERAL YEARS, THE OWNERS FEEL CERTAIN THAT THERE IS A MARKET FOR THE RIG AMONG OTHER PRODUCERS IN THE INLET. WE THINK THERE ARE NUMEROUS WORKOVER CANDIDATES THAT SIMPLY CANNOT ECONOMICALLY JUSTIFY THE MOBILIATION OF A FULL BLOWN DRILLING RIG, AND ARE GOOD CANDIDATES FOR OUR SERVICES. AND AS MORE SHALLOW GAS PAY IS IDENTIFIED IN WELLS THAT WERE DRILLED LOOKING FOR OIL, WE SEE EVEN GREATER DEMAND FOR A WORKOVER RIG SUCH AS OURS.
BRINGING THE UNIT TO COOK INLET WAS ALSO PART OF AN OVERALL STRATEGY TO BRING DOWN COSTS AND OFFER LESS EXPENSIVE OPTIONS, AND AS A RESULT DECREASE THE SIZE OF FIELDS THAT CAN BE ECONOMICALLY DEVELOPED WHICH WILL INCREASE THE ULTIMATE RECOVERY OF COOK INLET RESERVES.
CONLUSION WHY COOK INLET? WE SEE THE BASIN AS RESOURCE RICH AND UNDERDEVELOPED, ESPECIALLY FROM A NATURAL GAS PERSPECTIVE. WE ALSO SEE A MARKET THAT IS RAPIDLY TRANSITIONING FROM OVERSUPPLY TO UNDERSUPPLY. DESPITE THESE FACTORS, THE AREA IS LOSING APPEAL TO MANY OF THE MAJORS AND LARGE INDEPENDENTS, CREATING A SITUATION WHERE THERE ARE RELATIVELY FEW COMPETITORS.
THAT IS NOT TO SAY IT IS EASY, IN FACT THE MOTTO IN OUR OFFICE WHEN THINGS ARE GETTING ROUGH IS…. “JUST REMEMBER IF IT WAS EASY, SOMEONE ELSE WOULD HAVE ALREADY DONE IT”
AN INDEPENDENT TRYING TO OPERATE IN ALASKA WILL FACE REGULATORY COMPLEXITIES, AND A HIGHER COST OF DOING BUSINESS. BUT WE WOULDN’T BE HERE IF WE DIDN’T SEE OPPORTUNITIES AND TREMENDOUS POTENTIAL.
