Oct. 2--Enstar Natural Gas Co. has reached an agreement to purchase 10 billion cubic feet of gas from a group of independent companies working to develop the small North Fork gas field near Anchor Point on the Kenai Peninsula, Enstar spokesman John Sims said Sept. 28.

The contract must be approved by the Regulatory Commission of Alaska. If that happens, Enstar would build a 20-mile extension of the existing Kachemak-Kenai gas pipeline that would connect with a nine-mile pipeline built from the North Fork field by Denver-based Armstrong Oil and Gas. The company will develop the field for itself and a group of partners, Sims said.

Armstrong would put an existing well in the North Fork field into production and has agreed to drill two additional wells within four years, Sims said.

Enstar would have an option to purchase additional gas produced at North Fork.

"Enstar is excited about the new partnership. Armstrong is a reliable company engaged in exploration and development, and will add new competition to the Cook Inlet market. (It is) a promising development in the region and all customers in Southcentral Alaska," Enstar president Colleen Starring said in a written release.

Construction of the pipelines would begin as soon as the state regulatory commission approves the contract, Enstar said in its filing with the commission. The utility has asked for a decision by March 15, 2010, so Enstar can begin taking deliveries in 2011.

Extension of the pipeline would allow for natural gas service to be provided in Anchor Point, a community just north of Homer.

The contract provides for Enstar to pay within a range of prices, between $6.86 per thousand cubic feet and $9.90 per thousand cubic feet. The gas price would be set quarterly and based on a three-month average of New York Mercantile Exchange natural gas futures.

Armstrong is operator of the North Fork project and holds 20 percent ownership, and with four other independents as partners, Dale Resources, at 35 percent; GMT Exploration Co., at 30 percent; Jonah Gas Co, at 7.5 percent; and Nerd Gas Co. at 7.5 percent.

If the contract is approved, the North Fork producers would provide a minimum of 1.2 billion cubic feet of gas annually to Enstar, up to 10 billion cubic feet over the life of the agreement, and possibly more.

That supply would meet only about one-tenth of Enstar's projected gas supply shortfall in 2011, but it is a help, Enstar officials said.

"While this is not the entire answer to Southcentral Alaska's natural gas supply dilemma, it's a step in the right direction that will provide a reliable supply of gas to customers at a reasonable price," said Starring.

North Fork is southwest of existing gas producing fields in Ninilchik and Happy Valley on the Kenai, both discovered and developed in recent years by Marathon Oil Co. and Chevron Corp.

Starring said Armstrong is bullish about prospects for additional gas to be developed at North Fork once pipelines are built and its existing well is put into production.

Tim Bradner can be reached at

tim.bradner@alaskajournal.com.

-----

To see more of the Alaska Journal of Commerce, or to subscribe to the newspaper, go to http://www.alaskajournal.com.

Copyright (c) 2009, Alaska Journal of Commerce, Anchorage

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NASDAQ-NMS:ESGR, NYSE:CVX,

A service of YellowBrix, Inc.