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THE EXPLORERS 2004: Kerr-McGee finds oil on North Slope Armstrong snags Oklahoma independent as partner; discovery announced four months later Kay Cashman Petroleum News Publisher & Managing Editor
Happy New Year, Alaska. That was the front page headline in the Jan. 11, 2004, Petroleum News story which broke the news about Kerr-McGee entering Alaska. Over the Christmas holiday big independent Kerr-McGee Oil & Gas had bought a 70 percent interest in a North Slope prospect offshore BP’s Milne Point unit.
The major offshore player and premier deepwater explorer was snagged by Armstrong Alaska as majority partner and operator in the shallow water play where at least one exploration well was planned for that winter. The prospect was initially called Northwest Milne, but soon was renamed Nikaitchuq.
Happy New Year, Frank Murkowski The headline might also have read, “Happy New Year Gov. Frank Murkowski,” as Alaska’s governor had taken a special interest in attracting new explorers to the state’s prolific oil and gas basins. He welcomed the Oklahoma City independent with open arms.
“The governor wants more players on the North Slope. … Opportunities are opening up in Alaska. The state has been great to work with. It’s good to be able to bring a company to the slope that hasn’t been there before. Kerr-McGee is the kind of company we need up there. They are big enough to operate on the North Slope and they’re great operators,” Bill Armstrong, president of Armstrong Alaska and its affiliate, Denver-based Armstrong Oil & Gas, told Petroleum News Jan. 8, 2004.
In a Jan. 28 conference call Dave Hager, Kerr-McGee’s senior vice president of exploration and production, said his company viewed the North Slope as a low-cost basin with huge reserve potential. He said Kerr-McGee’s first well was expected to cost $7-10 million.
“We think that given that type of cost, we get significant reserve exposure on lower risk prospects for a low entry cost,” Hager said, adding that more acreage divestitures are likely in Alaska, which will provide his company with more acquisition opportunities. Alaska’s government, he said, was interested in getting “more companies like ourselves up there to kick off the next generation of prospecting.”
Alaska Interstate Construction had already begun ice road construction to the prospect when the deal between Armstrong and Kerr-McGee was announced Jan. 8.
The two companies rushed to get the drilling and operational permits transferred to Kerr-McGee.
To insure a smooth transition between the two operators, Kerr-McGee gave Armstrong Vice President Stu Gustafson power of attorney to direct the winter’s exploration operations.
Michael Stockinger, vice president of drilling for Kerr-McGee, would be head man for the company in Alaska. Stockinger had worked as drilling manager for Conoco in 1991 at the Milne Point unit.
Kerr-McGee also immediately set up an Alaska office in Arctic Slope Regional Corp.’s office building at 3900 C Street in Anchorage. Two Kerr-McGee employees began working rotation shifts from that office.
ASRC Energy Services, a subsidiary of Arctic Slope Regional Corp., was the engineering support operations service company chosen to oversee drilling under Gustafson at Nikaitchuq. Skip Coyner, the ASRC drilling superintendent who oversaw Pioneer’s exploration program at the nearby Oooguruk unit the previous winter, was the project manager.
Alaska Chadux was selected as the spill response contractor.
The agreement, which initially involved almost 13,000 acres that were unitized before drilling would be completed that winter, included the right to acquire interest in 13 additional leases in the area, totaling 54,000 acres.
The exploration plan Armstrong had filed with the state required one well but Stockinger said drilling additional wells allowed Kerr-McGee to “farm into additional acreage,” so the company set out to drill at least two wells.
The wells were drilled by Nabors Alaska from ice pads at two locations on Spy Island.
High-quality hydrocarbons Three months after it signed the deal with Armstrong, Rick Buterbaugh, Kerr-McGee’s vice president of investor relations, announced the company had “encountered high-quality hydrocarbons” from its first well, the Nikaitchuq No. 1, and was “encouraged” by the results.
The company was drilling the Nikaitchuq No. 2, he said, with an expected bottom hole some 9,000 feet from the initial well.
“This well,” he said, “may test the down-dip limit of the reservoir.”
Armstrong’s Nikaitchuq unit application to the Alaska Division of Oil and Gas said the partners planned to test prospective intervals in the Cretaceous Brookian sandstone, the Jurassic Nuiqsut sandstone and the Triassic Sag River sandstone.
The application also said the Jurassic interval, the secondary interval of interest, has been tied to 3-D seismic and to Thetis Island No. 1, drilled in 1985, and Pioneer Natural Resources’ Ivik No. 1, Oooguruk No. 1 and Kalubik No. 1 wells, drilled the winter of 2002-2003 in the Oooguruk unit.
The third objective, the Brookian interval, was found “with good reservoir quality and hydrocarbon shows” in wells directly to the southwest of Nikaitchuq, Armstrong said in the unit application.
Nikaitchuq No. 1 tests 960 bpd On April 19, 2004, Kerr-McGee announced that the Nikaitchuq No. 1 vertical exploration well tested 960 barrels per day of 38 degrees American Petroleum Institute crude from the Sag River formation.
The company also said that if the prospect was developed “horizontal wells would most likely be utilized, which would be expected to produce at higher flow rates than the vertical well.”
The company said the rig was off the ice and the Nikaitchuq No. 2, which was not tested, “successfully extended the accumulation down dip.”
A Kerr-McGee spokeswoman said the company was evaluating the data collected from the drilling and re-calibrating 3-D seismic of the area “to define appraisal drilling plans for the upcoming winter drilling season.”
Up to six North Slope wells Indeed, in July 2004, Kerr-McGee announced it planned to drill as many as six North Slope wells in the winter of 2004-2005 to evaluate its Nikaitchuq discovery.
The company said the wells would be drilled from two to three locations, using two, and possibly three, drilling rigs.
Kerr-McGee Alaska Operations Manager Todd Durkee told Petroleum News July 14 that the company included all of the options — from a single well to six wells — in the unit operations plan it filed with the Alaska Division of Oil and Gas.
The operations would be “nearly identical” to those in the same area last winter, with access by sea ice roads from Oliktok Point to ice pads on and adjacent to Spy Island.
“We either make a decision to move forward after this year’s drilling season or not,” Durkee said. “We intend to fully evaluate the Sag River formation discovery the company made last winter season.”
One well into Tuvaaq unit Armstrong’s newest unit — i.e. prospect — was Tuvaaq, approved by the state in September 2004. It lies between Nikaitchuq to the west and Pioneer/Armstrong’s Oooguruk unit immediately to the east.
Kerr-McGee said it had cut a deal with Armstrong to drill a well into the Tuvaaq unit that also involved taking a majority ownership position — Armstrong and Pioneer each took minority positions.
Kerr-McGee’s other five proposed pad locations were in the Nikaitchuq unit.
Armstrong’s five-year initial plan of exploration for Tuvaaq said it planned to drill three wells: the first, in the winter of 2004-2005, would test the Triassic/Jurassic; the second in the 2006-07 winter drilling season, would test the Cretaceous Kuparuk sand interval, Jurassic Nuiqsut sand continuity and limits of the Triassic Sag/Eileen/Ivishak accumulation within the Tuvaaq unit. The third well, planned for 2008-09, would test the Triassic Sag/Eileen/Ivishak intervals on the eastern side of the unit.
Kerr-McGee, Pioneer talking development deal In August 2004, both Pioneer and Kerr-McGee executives told analysts that they were discussing partnering for development of the oil discoveries made at their respective units.
“We have begun discussions with Pioneer to explore potential development synergies in Alaska,” said Buterbaugh in an Aug. 25 conference call.
He said Kerr-McGee expected to drill two of the five appraisal wells it had permitted in the winter of 2004-2005 on its Northwest Milne acreage (Nikaitchuq) “to confirm deliverability and to establish the aerial extent of the reservoir.” He also confirmed the company would drill at least one exploratory well on its West Milne Point acreage (Tuvaaq).
Strong technical justification The division said in its decision approving the Tuvaaq unit that “Armstrong submitted a strong technical application that justified the size and shape of the unit.” Armstrong integrated and interpreted 3-D seismic surveys and tied that data to surrounding well control, using the data to identify targets including the Jurassic Nuiqsut and Sag River, Eileen and Ivishak sandstones.
Well data was available from the Milne Point field several miles southeast of Tuvaaq, where oil is produced from the Schrader Bluff, Kuparuk and Sag River formations, and from the Kuparuk River field south of Tuvaaq, which produces out of the Kuparuk River formation. The division said there were also a dozen or so exploration wells south and west of Tuvaaq which have tested hydrocarbons in the Kuparuk formation and in Jurassic sands.
Armstrong tied 3-D seismic from Tuvaaq with the offshore Thetis Island No. 1 and the Kalubik No. 1 wells, and with recent wells in the adjacent units: the Ivik, Natchiq and Oooguruk wells in the Oooguruk unit and the Nikaitchuq No. 1 and No. 2 in the Nikaitchuq unit.
“Armstrong believes that the quality and thickness of the Sag River sandstone should increase to the north/northwest from the Milne Point area into the Tuvaaq unit area,” the division said, also noting that oil-stained Brookian sandstones were encountered in the Thetis Island No. 1 and Kalubik No. 1 wells southwest of Tuvaaq. A Brookian sandstone in the Kalubik No. 1 well tested oil at a rate of 10 barrels per day, and Brookian sands were also tested in the Thetis Island No. 1 well, producing mud filtrate with a trace of oil.
In the northern Milne Point unit and northeastern part of the Kuparuk River unit the primary oil production comes from lower A Kuparuk sandstone, and in the northwestern Kuparuk River unit Kuparuk C sandstone is preserved locally, with a significant portion of production from Kuparuk C, along with A sandstones. Some Kuparuk C sandstone is preserved southwest of Tuvaaq in the Kalubik wells and in the Colville Delta wells.
“It is quite possible,” the division said, “that the Tuvaaq area could contain pods of Kuparuk C sandstone that have been preserved on the down-side of the northwest trending, down to the northeast faults in the area.”
Jurassic sandstone potential There was also Jurassic sandstone potential in the area, with three oil-bearing Jurassic sandstones in the Colville Delta area southwest of Tuvaaq: the Nechelik, Nuiqsut and Alpine. While the Alpine interval was not present in the northern Colville Delta, the underlying Nuiqsut sandstone appeared to extend into and thicken in the Colville Delta area: “The overall Jurassic section appears to thicken to the east-northeast of the Colville Delta area based on the East Harrison Bay 1 and Oliktok Point 1 wells,” the division said.
Jurassic Nuiqsut sandstone oil prospects at Tuvaaq “are dependent on the interplay of faulting,” the division said, and the faulting probably separates the potential Jurassic reservoir in the Tuvaaq area from the Thetis Island accumulation.
“The key to unlocking the reserves within the Jurassic sands is producing the low API gravity oil without damaging the formation with drilling fluids,” the division said, in contrast to Sag River oil, expected to be higher API.
Armstrong has also identified Sag River and Sadlerochit potential by integrating 3-D surveys over the Colville Delta, Prudhoe, northern Milne Point, northern Kuparuk, Oooguruk, Tuvaaq and Nikaitchuq.
There are two Sag River structural prospects at Tuvaaq, and the division said that geochemical analyses of oils from the Nikaitchuq and Milne Point wells predict that Sag River oil at Tuvaaq would be in the range of 36-38 degrees API; reservoir modeling predicts a production rate of up to 2,500 barrels per day with horizontal wells.
—Kristen Nelson contributed to this story
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