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Preview of Explorers magazine coming soon: Accumulate to drill; -$40 for Yukon Gold
Permits in place to drill two Icewine wells in search of conventional oil next year; 88 Energy looking for farm-in partner Kay Cashman Petroleum News
The busiest of 88 Energy Alaska Inc.’s companies during the North Slope’s winter off-road drilling season of 2018-19 was Captivate Energy Alaska Inc. with the Winx 1 exploration well.
The coming year, spring 2019 through spring 2020, looks to be a little busier, involving a different one of three of 88E’s North Slope acreage blocks, specifically drilling two wells for conventional oil with a new farm-in partner at Project Icewine and looking for a farm-in partner for a work program for Icewine’s unconventional HRZ source rock resources.
First a little background.
88 Energy Alaska is a subsidiary of Australian independent 88 Energy Ltd., a West Perth-based ASX and AIM listed firm. In addition to Captivate, 88E’s Alaska arm has two other fully owned subsidiaries doing business in the northernmost state - Accumulate Energy Alaska Inc. and Regenerate Alaska Inc.
In its 2018 annual report released in February, 88E touted the state of Alaska’s leasing program, noting the primary term for leases is now 10 years with a 16.5 percent royalty. The company also spoke of recent North Slope exploration successes as more and more missed oil is found and the resultant entry of new players such as Oil Search, one of Australia’s leading oil companies.
“Bill Armstrong (who brought in Oil Search as a partner), one of North America’s most successful explorers has described the source rocks of Alaska as unbelievably rich and prolific, having generated and expulsed about 1.5 trillion barrels of oil. Yet only a small fraction of that 1.5 trillion barrels has been found, leaving vast potential remaining to be discovered. Almost all the remaining fields in Alaska are stratigraphic traps rather than anticlines and require a subtler exploration approach, which 88E is pursuing as it targets reservoirs adjacent to those same source rocks,” 88E’s Chairman Michael Evans wrote in the annual report.
88E’s top executive in Alaska is Anchorage-based general manager of operations Erik Opstad, a state of Alaska certified professional geologist, who has worked the North Slope for 34 years, including a stint with BP in various roles and as a principal and general manager of Savant Alaska.
Morocco to Alaska In late 2014 and early 2015, the young Tangiers Petroleum swapped the warm waters off Morocco for Alaska’s onshore Arctic, changing its name to 88 Energy during the same period.
In November 2014, Tangiers joined forces with Burgundy Xploration, the agent and high bidder on almost 87,000 acres in the state of Alaska’s North Slope areawide lease sale that year. Tangiers took an 87.5 percent interest in the leases, which the partners named Project Icewine, today operated by Accumulate.
Since that time 88 has expanded Icewine to approximately 525,000 gross contiguous acres (349,108 net).
Both the Dalton Highway, providing year-round operational access, and the 800-mile trans-Alaska oil pipeline run through the leases, which lie south of the Prudhoe Bay unit.
Yukon Gold expands The company diversified its North Slope portfolio in 2017 by successfully bidding on 14,194 gross contiguous acres on state land on the eastern North Slope, adjacent to the ANWR 1002 area. The Yukon Gold Block included an historic oil discovery, the Yukon Gold 1 exploration well. Operated by Regenerate, 88E holds a 100 percent working interest in this acreage.
In a state areawide lease sale in November 2018 Regenerate bid on an additional contiguous lease of about 1,920 acres, which brought its Yukon Gold position to approximately 16,114 acres.
Third block to west In June 2018, 88E picked up a third acreage block, referred to internally as its Western Block, entering into an agreement with Great Bear Petroleum Ventures II LLC (now merged with newcomer Pantheon Resources Plc) to acquire the majority working interest in four state leases - ADL 391718, 391719, 391720 and 391721.
Also subject to the agreement was a consortium involving Captivate, Otto Energy Ltd. and Red Emperor Ltd.
The agreement included drilling the Winx 1 exploration well on a lease to the east of, and adjacent to, the Horseshoe 1/1A well lease, a 2017 oil discovery by operator Armstrong Energy and partner Repsol.
Horseshoe extended the proven Nanushuk play fairway some 20 miles south of the Pikka unit where the initial discovery had been made.
In payment the consortium had to provide a performance bond to the state of Alaska for $3 million; drill the exploration well by May 21, 2019; free-carry Great Bear for a 10 percent working interest for the initial test well; cover all associated costs such as permitting, an 11-mile ice road, an ice pad, and production testing; as well as pay Great Bear $1 million.
The consortium also gave Great Bear, now Pantheon, a back-in right to acquire an additional 10 percent working interest prior to the spud of the initial test well by paying the pro‐rata share of all costs of the initial test well, including all associated costs, or if exercised within six months of completing the initial test well by paying 200 percent of the pro‐rata share of all costs.
Otto said it is covering 25 percent of the well costs to earn a 22.5 percent working interest in the leases. 88E’s Captivate has a 36 percent interest and Red Emperor 31.5 percent. If Pantheon chooses to exercise its option to increase its ownership to 20 percent, those percentages will change.
Activity at Icewine, conventional 88E’s Accumulate is pursuing both conventional and unconventional oil resources at Icewine. The Icewine 3-D seismic survey (approximately 480 km2, or 185 square miles) targeting conventional resources was completed in March 2018 identifying several large prospects and leads previously identified on 2-D.
In August 2018, a revision of Icewine’s conventional portfolio was announced “with multiple leads promoted to drillable prospects,” 88E said, noting a gross mean prospective resource, unrisked, of 2 billion barrels across the Icewine acreage (1.5 billion barrels net); an increase of 50 percent from the previous estimate.
In its year-end 2018 report 88E said Project Icewine 3-D “seismic inversion data was substantially complete at year end with discrete three-dimensional geobodies delineated in the Schrader topset play and the Torok slope and basin floor fan play. The 3-D seismic inversion calibrated by updated rock trending models highlighted better than anticipated reservoir potential within the Torok.”
Permitting is in place to drill two exploration/appraisal wells in the winter drilling season of 2019-20.
The Project Icewine conventional portfolio farm‐out campaign started in mid-2018 with a data room opening. 88E said it expected to announce a new partner in the first half of 2019.
Activity at Icewine, unconventional The Icewine 1 well in 2015 and the follow-up appraisal Icewine 2 well in 2017, both drilled from the Franklin Bluff gravel pad off the Dalton Highway, yielded positive results for unconventional oil and gas.
Rock core from the Icewine 1 well demonstrated a “liquids rich resource play” in the HRZ, a prolific North Slope oil source rock.
88E said the partners believe Icewine 2 results supported potential economic viability of the HRZ source rock play “and are within the range of outcomes achieved at other early stage unconventional plays, despite not achieving a flow rate that is representative of the capability of the reservoir.”
Work at Icewine 2 included acquisition of a more sophisticated logging suite to complement the core obtained from Icewine 1. Results from the well “provided the requisite data to confidently design a horizontal well with a multi-stage stimulation that can access the entire height of the formation,” 88E said in July 2018.
Icewine 2 was suspended to allow future use of the wellbore, including a horizontal sidetrack with multi-stage stimulation.
Oil and gas service company Baker Hughes was then engaged, “bringing global experience from both longstanding and burgeoning unconventional plays to provide integrated geological, structural, petrophysical, and geomechanical interpretations for evaluation of the HRZ shale” source rock, 88E said.
Baker Hughes has recommended several new state-of-the-art lab tests to augment the current body of work.
88E launched a farm-out process in third quarter 2018 that is expected to yield announcement of a third partner to fund a work program for unconventional oil and gas by the end of third quarter 2019.
Activity at Yukon Gold Yukon Gold, on state land adjacent the border of the ANWR 1002 area, includes an historic discovery well, the Yukon Gold 1 drilled by BP in 1993. Per the state of Alaska, recoverable reserves are 120 million barrels of oil. (In its 2018 annual report 88E said, “Provisional 3-D seismic mapping delineated 90 million barrels of oil of prospective oil resource to the company, net mean unrisked.”)
In March 2018, Regenerate awarded a seismic contract to SAExploration to acquire 100km2 (roughly 39 square miles) of 3-D seismic, over the Yukon Gold leases. The fast-tracked seismic acquisition was completed April 1, 2018.
The data allowed an assessment of the volumetric potential of the untapped Yukon Gold oil discovery, as well as the broader lease position.
Processing and mapping were done to assess the resource associated with three sand bodies. The largest of these was the Cascade prospect, which 88E said contained approximately 92 percent of the “preliminary mapped resource” on the Yukon leases. The up-dip portion of the prospect was clearly identified as a channelized feature and is likely to contain thicker sands of higher quality, 88E said.
Cascade was “interpreted to have been intersected in a down-dip distal location by the vintage Yukon Gold 1 oil discovery well.” That well also “discovered two oil saturated sands in the Canning formation with porosities exceeding 18 percent,” 88E said, noting a Brookian turbidite fan play, with additional prospectivity mapped with 3-D seismic within the Staines tongue topset play.
“Up until the recent commissioning of infrastructure at the nearby Point Thomson gas/condensate/oil field in 2016 (operated by ExxonMobil), an accumulation of this size and location would have been considered stranded,” 88E said. “Internal modelling suggests that break‐even development price is now less than $40 a barrel.”
In-house evaluation continued through 2018. Plans for the next year, spring 2019 through spring 2020, have not yet been announced.
Western Block drilling Technical evaluation and 3-D seismic interpretation of the Western Block by Otto identified an oil prospect in the successful Nanushuk formation, leading 88E’s Captivate and its partners to test an extension of the play’s fairway with the Winx 1 well in first quarter 2019, four miles east of Horseshoe 1/1A.
The well targeted stacked Brookian and deeper objectives with a gross mean unrisked prospective resource of 400 million barrels of oil, 88E said.
“The Western Block transaction represents a significant opportunity for 88E shareholders to gain exposure to one of the most prospective oil plays available globally,” David Wall, managing director of 88E, said when the deal with Great Bear was announced.
On March 4, Otto’s Matthew Allen told Petroleum News there “are no forward plans for 2020 at this stage.”
Note: All sums in the above article are in U.S. dollars.
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