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January 2018

Vol. 23, No. 4 Week of January 28, 2018

Division denies Miluveach unit expansion

Says BRPC application describes generalized concept to develop area, no firm commitments; doesn’t show it facilitates production

Kristen Nelson

Petroleum News

Brooks Range Petroleum Corp. applied for an expansion of the Southern Miluveach unit last June. In a Jan. 24 decision the Alaska Division of Oil and Gas denied the expansion, which would have added 21,472 acres to the existing 8,960 acres, more than tripling the size of the unit to 30,432 acres. Of 12 leases in the proposed expansion area, eight have lease terms which expired at the end of last June.

The division’s decision, signed by Deputy Director James Beckham, quoted the SMU unit agreement as saying the operator may apply to expand the unit “to include any additional lands determined to overlie a Reservoir that is at least partially within the Unit Area, or to include any additional lands that facilitate production.” That requires, the division said, that BRPC show “that either there is a reservoir in the existing SMU that extends into the expansion area or BRPC has plans to use the expansion area to facilitate production from SMU.”

The division’s regulations require that the unit must be “the minimum area required to include all or part of one or more oil or gas reservoirs, or all or part of one or more potential hydrocarbon accumulations,” requiring, the division said, that BRPC show that the expanded unit “would be no bigger than necessary to include all or part of a potential hydrocarbon accumulation or reservoir.” The division must also find the expansion is in the state and public interest.

Formed in 2011

The unit, on the North Slope south of the Kuparuk River unit, was formed in March 2011. An initial plan of exploration required BRPC to drill and evaluate at least three wells in the Kuparuk formation by May 2012. Two were drilled, the division extended the third to May 2014. BRPC failed to meet that deadline, but did drill the third well in 2015.

The unit had a five-year primary term, which the division extended through the end of 2017. In late 2017 BRPC reentered and tested one of the original wells, receiving certification that it is capable of producing in paying quantities, thus extending the unit so long as the company is continuously producing or conducting operations under an approved plan of development. “BRPC is not currently producing, so the continuation of SMU hinges on BRPC conducting operations to achieve sustained production,” the division said.

Vague plans

The division said it acknowledges that based on data submitted by BRPC, there is a “chance of reservoir quality hydrocarbon accumulations existing within either the Torok Formation or Kuparuk C sand in the proposed expansion area. Both are reasonable prospective plays. Both have inherent risks that would require additional exploratory wells to evaluate.”

But while the company identified “prospectivity within the expansion acreage,” the division said, there are no specific exploration well locations or well plans.

“Accordingly, the prospects are not sufficiently delineated to qualify as potential hydrocarbon accumulations and therefore the unit, as expanded, would not be the minimum size necessary to encompass potential hydrocarbon accumulations. Nor has BRPC demonstrated a reservoir that extends from the existing unit into the proposed expansion area to qualify for a unit expansion under the terms of the unit agreement.”

BRPC submitted a plan of development but the division said it describes a generalized idea for exploration but does not provide detail or make firm work commitments: “In this respect, it is more of a concept than a POD.”

The company’s short-term plans are limited to planning and studying existing data, and the division said those activities do not constitute exploration or development operations. 2019 is the earliest that BRPC might drill, but the division said the company offers no specific commitment, and because of the lack of detail and work commitment, the division said the POD does not demonstrate that the expansion would facilitate production as required under the unit agreement.

“The purpose of a unit is to conserve resources through joint development, not to warehouse acreage for a hypothetical development of unknown resource potential with no specific plans to timely pursue the resource,” the division said.

Benefits

As to economic costs and benefits to the state, because BRPC has no firm commitment to drill, and with no evidence of a potential hydrocarbon accumulation, the economic benefit to the state “is little different from the potential economic benefit inherent in any oil and gas lease.”

While expansion would protect the interests of the working interest owners by expanding leases beyond their primary term, “lease extension is a side-effect of unitization, not its purpose,” the division said.

The division concluded that there are so many unknowns in BRPC’s application that it does not demonstrate that unit expansion would prevent economic waste.

There is a 20-day appeal period to the commissioner of the Department of Natural Resources from the date of the decision.






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