Providing coverage of Alaska and northern Canada's oil and gas industry
September 2018

Vol. 23, No.35 Week of September 02, 2018

Oil Search plans appraisal wells at Pikka unit this winter season

Kristen Nelson

Petroleum News

Australia-based Oil Search Ltd. said in its Aug. 21 first half results call with analysts that it plans to drill two appraisal wells in 2018-19 at the Pikka unit it operates on Alaska’s North Slope. Petroleum News has previously reported that the company plans to use two drilling rigs for work this winter, an early indication of plans to drill two wells.

Peter Botten, Oil Search managing director, reviewed the company’s progress in Alaska since it acquired interests at Pikka, Horseshoe and elsewhere on the North Slope from Armstrong Energy last year. He discussed four stages of planned growth in Alaska: development of the Nanushuk in the Pikka unit; Nanushuk expansion, south into Horseshoe; exploration with a focus on tie-back opportunities; and new business, including potential infrastructure sharing with ConocoPhillips Alaska and portfolio growth options with Armstrong, Repsol and others.

The initial focus, on Pikka Nanushuk development, involves integrating recent technical advances in drilling and completion techniques, Botten said. The project is on track for FEED entry, front-end engineering and development, in the second quarter of next year, leading to a final investment decision in mid-2020, he said, with the final scope of Pikka Nanushuk development the determination of whether the facility will be sized for 80,000 barrels per day or 100,000 bpd, a determination which will be made based on 2019 season drilling results.

First oil is expected in 2023.


The second focus, on Nanushuk expansion in the Horseshoe area south of Pikka, has the potential of 300 million barrels of resource, Botten said. That work, planned for 2019, will involve seismic reprocessing, reservoir modeling and data trades with ConocoPhillips with drilling planned for 2020.

For the third focus, exploration, he said Oil Search has identified a number of opportunities which it is prioritizing as potential tie-in opportunities to the core development. That would be a three-plus year program.

The last focus, new business, is on building strategic relationships, something Botten said the company was working to accomplish in what he called a reasonable timeframe. Presentation information categorized this phase as strategic relationships and listed the potential for infrastructure sharing with ConocoPhillips Alaska, and portfolio growth options with Armstrong, Repsol and others.

Botten said Oil Search is having what he characterized as very successful discussions with ConocoPhillips around field development, including use of common infrastructure and how the fields will potentially be developed.

Focus on Pikka

The immediate focus is a successful appraisal of the Pikka unit.

He noted recent drilling by ConocoPhillips at Putu has highlighted reservoir continuity and the potential for upside resources in the field.

This winter’s drilling will be at the Pikka B and Pikka C, with a goal of increasing proven resources from the 500 million barrels assumed in the acquisition, targeting an additional 250 million barrels. The Pikka B and Pikka C locations have been identified and the sites surveyed, both northeast of Nuiqsut as shown on a map of the Nanushuk reservoir extent that was part of the company’s presentation. Drilling sites were not specifically identified and the Alaska Oil and Gas Conservation Commission has not yet issued drilling permits, which will identify drilling locations by section, township and range.

Drilling is expected to begin by the end of the year and be completed in April.

Percentage of ownership

Last year Oil Search purchased a portion of Armstrong Energy and GMT Exploration’s interests at Pikka and Horseshoe, paying $400 million for a 25.5 percent interest in the Pikka unit and adjacent exploration acreage and 37.5 percent interests in the Horseshoe block and the Hue shale, with an option, exercisable until June 30, 2019, to purchase all of Armstrong and GMT’s remaining interest in the Horseshoe block (25.5 percent and 37.5 percent respectively) as well as an additional 25.5 percent interest in adjacent exploration acreage and 37.5 percent in the Hue shale, for $450 million.

In its financial overview Oil Search specified the acquisition of Alaska assets at US$416 million and said the Alaska Nanushuk development would be done with new project finance facilities.

Repsol has partnered with Armstrong and GMT, holding a 49 percent interest in Pikka and Horseshoe.

Asked about the percentage of ownership which Oil Search wants, Botten said they are already preparing a data room and a team to support divestment, looking at an ownership of about 30 percent long term.

A slide from the presentation says the company is beginning the process for capturing the Armstrong value option, aligning with Repsol to attract quality third parties linked to exercising the option and undertaking joint divestment.

The company has an option, good through next June, to acquire the other 50 percent of Armstrong equity in the project.

A ‘world-class team’

Botten said building a world-class team in Alaska was critical to the company’s success, with some 50 people working in Anchorage, a number expected to grow to about 100 by year-end.

In an overhead prepared for the presentation Oil Search said it is investing in local talent in Alaska, with 70 percent of its employees residents of Alaska and 9 percent Alaska Natives.

The company said the team has strong Alaska and international capability, with the overhead noting 335-plus years of U.S. oil and gas experience, 240-plus years of Alaska North Slope experience and extensive global experience.

Oil Search highlighted the diversity of its Alaska team: 28 percent of the leadership team is composed of women; 30 percent of the Oil Search Alaska team are women; and 16 percent are expats transferring Oil Search knowledge to Oil Search Alaska.


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