k l lk l lCook Inlet Natural Gas: Cook Inlet Natural Gas: The Way ForwardThe Way ForwardThe Way ForwardThe Way Forward

Study conducted by Petrotechnical Resources of AlaskaPetrotechnical Resources of Alaska

Sponsored by:ENSTAR Natural Gas

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ENSTAR Natural GasChugach Electric AssociationMunicipal Light & Power

Why Do Utilities Care About Cook Why Do Utilities Care About Cook I l t G ?I l t G ?Inlet Gas?Inlet Gas?

ENSTAR◦ Cook Inlet gas provides 100% of supply◦ 2009 consumption: 32.5 BcfChugachChugach◦ Cook Inlet gas used for 90% of generation◦ 2009 consumption: 26 BcfpML&P◦ Cook Inlet gas used for 88% of generation◦ 2009 consumption: 10.8 Bcf

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Where Does Gas Come From?Where Does Gas Come From?

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Gas Under Contract/OwnershipGas Under Contract/Ownership

ENSTAR

/ p/ p

◦ 100% of needs met through 2010◦ Approximately 25% unmet needs beginning 2011ChugachChugach◦ 100% of needs met to spring 2011◦ 50% met through 2014; 60% in 2015; 29% in 2016g ; ;ML&P◦ Share of Beluga field estimated to meet majority of needs

th h 2015through 2015

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Combined Utility Met and Unmet Gas Demand Combined Utility Met and Unmet Gas Demand

80

90Met Unmet

60

70

30

40

50

10

20

30

0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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Supply ConceptsSupply Conceptspp y ppp y p

Reserves ◦ Proven◦ Probable◦ Possible◦ PossibleAnnual supplyDeliverability (seasonal demand)Deliverability (seasonal demand)◦ Storage

Needed by winter 2011-2012Agreement in progress

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Annual SupplyAnnual Supplypp ypp y

Source: AK DNR December 2009 Study

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Cook Inlet Gas StudyCook Inlet Gas StudyCook Inlet Gas StudyCook Inlet Gas Study

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The StudyThe Studyyy

Commissioned by ENSTAR, Chugach and ML&PPerformed by PRACompleted March 2010

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Study ObjectivesStudy Objectivesy jy j

Review DNR reserves analysisReview the deliverability of Cook Inlet gas wells drilled from 2001-2009Forecast deliverability of existing and future gas wellsA l ti i i d f d li f C kAnalyze timing required for delivery of non-Cook Inlet gas sources

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MethodologyMethodologygygy

Field-level decline curve analysisIndividual well decline curve analysis◦ Initial Production

P d ti fil◦ Production profileIP progression through timeCalculate activity required to meet demandCalculate activity required to meet demandPOD review Analysis of business driversAnalysis of business drivers

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Cook Inlet Drilling ResultsCook Inlet Drilling Resultsgg

Period Gas Wells D ill d

Gas WellsC l t d

Initial P d tiDrilled Completed Production (MMCF/day)

2001-2009 128 105 3.6 per wellp2007-2009 34 34 3.1 per well

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Cook Inlet Gas DevelopmentCook Inlet Gas Developmentpp

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The Problem

Both PRA and DNR conclude from decline curves we have annual supply problems by 2013 if no new wells are drilledPRA t d l d th t i ifi t d l tPRA study concludes that significant development activity is required

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Annual SupplyAnnual Supplypp ypp y

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ScenariosScenarios

With development drilling continuing at the same pace as in 2007-2009, supply is sufficient to meet demand until 2018, assumes 136 new wells being drilleddrilled

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Cook Inlet Supply and Demand

160

pp yPRA Forecast December 2009

Assumes 2007-09 Drilling Activity of 13.6 Completions/Yr 2010 to 2019

120

140 Supply Forecast

Demand Forecast

60

80

100

BC

F/Ye

ar

20

40

60

02008 2010 2012 2014 2016 2018 2020

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ScenariosScenarios

If current trends in drilling success rates continue, an estimated 185 new wells must be drilled to meet utility needs between now and 2020

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Cook Inlet Supply and Demand PRA Forecast December 2009

160

PRA Forecast December 2009Includes 185 Wells Completed to Meet Demand to 2020

100

120

140

r

Supply Forecast

Demand Forecast

60

80

100

BC

F/Ye

ar

20

40

0

2008 2010 2012 2014 2016 2018 2020

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The CostThe Cost

The estimated cost of drilling & development in the past decade was $1 – $1.2 billionThe estimated cost of drilling & development in the

i d d i $1 9 $2 8 billicoming decade is $1.9 - $2.8 billionHigher production costs will lead to higher prices for energyfor energy

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CaveatsCaveats

Near-term drilling must be successful or gas resources from outside the Cook Inlet could be required as early as 2013If t d illi d t k ithIf near-term drilling does not keep pace with demand, the only viable option is LNG imports; that option requires immediate actionthat option requires immediate actionLNG imports could be necessary for several years until an in-state gas line is availableg

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Where Must We Go From Here?Where Must We Go From Here?

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Immediate Actions NeededImmediate Actions Needed

New gas supply agreements between Cook Inlet Utilities and producers Predictable timelines and standards for RCA

l f tapproval of agreementsUtilities must secure storageContinue customer awareness conservation andContinue customer awareness, conservation and curtailment plans

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Immediate Actions Needed (cont.)Immediate Actions Needed (cont.)( )( )

Land management processes must be streamlined Determine how gas will come to the region to

t l t d fmeet long-term needs of consumersAttract exploration & development companies

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Wells Drilled, Wells Required & Influencing FactorsWells Drilled, Wells Required & Influencing Factors

30

35

25

er of W

ells •Renewed LNG 

Export Licenses•Rising Regional  Price•Industrial FertilizerOperations

15

20

Num

be

Wells Drilled

•New Gas Contracts

•Contract Approvals•Predictable Regulatory  

10 Future Wells Needed

Environment Needed•Incent Investment with Stable Pricing•Streamline PermittingProcessTransition

0

5

20012002 2003 2004 2005 2006 2007 2008  2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Transition Period

Year

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Cook Inlet Supply and DemandPRAF tD b 2009Summary Summary

140

160

PRA Forecast December 2009with wells drilled through 2009

Projected level of Utilities’ demand for

Cook Inlet natural gas

120

140

Projected level of demand for Cook Inlet natural gas

80

100

BCF/Ye

ar

$1.9 to $2.8 billion capital investment required to increase supply of gas

Projected level of supply if no new Investment is made

to develop additional d ti i th C k I l t

40

60 needed to meet demand from existing and new wells

Projected level of supply if no new Investment is

made to develop dditi l d ti iproduction in the Cook Inlet

0

20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

additional production in the Cook Inlet

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

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The Way ForwardThe Way ForwardThe Way ForwardThe Way Forward

Increase drilling in Cook Inlet ◦ Streamline resource development processes ◦ Timely contract approval to incent drillingFacilitate natural gas storageFacilitate natural gas storageTo backstop drilling program, develop LNG import options for 2013options for 2013In-state gas line offers long term solutions

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