Marathon Oil Co. and Unocal Corp. reported a significant natural gas discovery of about 90 Bcf of gross proven recoverable gas reserves on the Ninilchik Prospect on the Kenai Peninsula, approximately 35 miles south of Kenai, AK. Marathon is operator of the well and the 25,000-acre prospect with a 60% working interest, while Unocal Alaska holds the remaining 40%.

The companies said the discovery well, Grassim Oskolkoff #1, was drilled to a depth of 11,600 ft. and encountered several gas-bearing sands. Testing of one 39-foot interval at 9,822 ft. flowed gas at 11.2 MMcf/d. Three additional wells are completed on the structure and await testing, while additional drilling is planned to delineate the structure’s upside potential.

“The Ninilchik discovery, together with our recent Wolf Lake production coming on-line, demonstrates Marathon’s continuing commitment to the Cook Inlet natural gas market,” said John Barnes, manager of Marathon’s Alaska Business Unit. “In the last five years, Marathon has drilled six successful gas exploration wells in the Cook Inlet, and we remain committed to continued investment to establish the full potential of this gas-prone region.”

Marathon expects further field development in anticipation of first gas sales in late 2003. To transport the gas to market, a new gas transmission line, the Kenai Kachemak Pipeline (KKPL), will be constructed. The KKPL is expected to deliver the natural gas to existing Cook Inlet infrastructure for local market consumption throughout the South Central Alaska region, including the city of Anchorage. To construct the new line, Marathon and Unocal Alaska formed Kenai Kachemak Pipeline LLC. Design and permitting for KKPL is currently under way.

Chuck Pierce, vice president of Unocal Alaska, said Unocal has begun a separate three-well exploration program on the southern Kenai Peninsula. The company anticipates it will complete this initial program by May 2002. As part of Unocal’s greater Alaska strategy, it has acquired a total position in excess of 80,000 net acres. The company believes the net unrisked resource potential of the Ninilchik Unit and the additional prospects Unocal plans to test by mid-2002 could be between 100 and 600 Bcf. By the end of 2002, Unocal expects to have completed and tested eight wells on the trend — five wells in the Ninilchik Unit, and three wells on the other Unocal prospects.

“These wells have major implications for natural gas development of the southern Kenai Peninsula. Based on the results of the Marathon- and Unocal-operated programs, we expect to have sufficient gas resources to support construction of the proposed Kenai-Kachemak pipeline,” Pierce said.

Unocal said it has already signed a contract to sell up to 450 Bcf of gas to ENSTAR Natural Gas Co. beginning in January 2004. ENSTAR distributes natural gas to Anchorage, the Matanuska-Susitna Valley, and the Kenai Peninsula. The Regulatory Commission of Alaska approved the Unocal-ENSTAR gas contract in December 2001.

Unocal Alaska operates 10 platforms in the Cook Inlet off the southern Alaska coast and 5 of 11 producing gas fields. Unocal Alaska’s average net daily production during 2001 was 105 MMcf of gas and 25,000 bbl of oil.

Marathon is one of the largest gas producers in the Cook Inlet with more than 40 years of exploration and production activities. The company estimated that it currently supplies more than 60% of the natural gas consumed by South Central Alaska utility markets.

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