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Alaska needs to be more competitive Pioneer Natural Resources exec tells ‘Meet Alaska’ that with Lower 48 shale developments independents have resources in backyard Kristen Nelson Petroleum News
When Pioneer Natural Resources came to Alaska in 2002 it was looking for resources, resources which at that time didn’t seem so plentiful in the Lower 48.
There have been a lot of changes over the past 10 years, both for the industry and for Pioneer, the company’s executive vice president for domestic operations, Jay Still, told the Alaska Support Alliance’s annual “Meet Alaska” conference in Anchorage Jan. 21.
The company wanted to be in the United States, and when the company came to Alaska in 2002 the prolific petroleum systems in the U.S. were the Gulf of Mexico and Alaska.
There were opportunities in Alaska to develop oil fields close to infrastructure and get them on line fairly quickly — a significant thing for independents, he said.
The company participated in close to a dozen wells on the North Slope.
“We did not have a dry hole — every well we found the hydrocarbons,” he said. “We just didn’t find rock that we could make production in commercial quantities.” Those wells, drilled between 2003 and 2007, included Intrepid, Noatak 1, Kokoda 1 and Kokoda 5 in the National Petroleum Reserve-Alaska. On state lands the wells included Oooguruk 1, Ivik 1, Natchiq 1, Tuvaaq State, Hailstorm 1, Antigua 1 and Cronus 1, all on the western side of the North Slope.
Of those wells, Oooguruk — and only Oooguruk — led to development. The field has been in production since 2008.
Hydraulic fracturing The problem with the other wells, Still said, was reservoir quality.
But in the Lower 48 production is occurring in shale plays in “a thousand-times worse rock than what’s on the North Slope.” And if those wells had been drilled in the Lower 48, “we would be all over them. There would be no question that the thing could be developed, with horizontal wells, the fracture technology.”
That’s the technology change that has occurred in the last 10 years, he said.
Improvements in horizontal drilling and hydraulic fracturing in horizontal wells have been “the big key to resource development in the Lower 48.”
At the Spraberry field in west Texas, which has been producing for decades, the field “keeps getting redeveloped: This is the bread and butter of the oil patch,” Still said.
Spraberry development has been by opening additional zones. But with hydraulic fracturing technology, production is up 30 percent from wells drilled just a decade ago, he said.
From gas to oil Shale gas has almost doubled proven natural gas reserves in the Lower 48 over the last five years.
But the game changer for Pioneer came in the Eagle Ford shale, Still said, with what’s been called the largest oil discovery since Prudhoe Bay.
“We think of the shale as another gas play: It’s not. We have to deal with gas to get to the liquids and that’s where the value of the Eagle Ford shale is.
“The gas you give away and you’d make profit just by producing the liquids and that’s one of the problems we’re going to see in the gas market,” Still said, with companies “drilling gas wells like crazy to get to the liquids, because that’s where the value is … but it’s keeping gas prices depressed.”
Resource doubled Between Spraberry and Eagle Ford, Pioneer has “doubled the size of our resource” in the last year, from proven reserves of about a billion barrels of oil equivalent at the end of 2009 to 2.3 billion boe in 2011.
Pioneer is the largest producer and acreage holder in Spraberry and the largest producer.
“We’ve got 20,000 locations to drill in Spraberry; this is a huge growth engine for us,” he said.
Then there is Eagle Ford, where the company acquired a large acreage position going after the Edwards Reef play. Pioneer has been drilling through Eagle Ford shales for years, until two years ago when the company started looking at the shales it had been drilling through and comparing them to Barnett shales.
Using horizontal wells and hydraulic fracturing in the Eagle Ford shales produced “a company-changing event for our company,” Still said.
“So we looked like the smartest guy in the room simply because we had a lot of acreage.”
Pioneer will grow production 70 percent over the next couple of years, he said, and double its cash flow in the next five years.
The Alaska opportunity “Where are we going to spend the cash flow?” he asked.
Well, that’s the opportunity for Alaska.
“We’re in a good place with Oooguruk; this is a great hydrocarbon basin,” Still said.
Pioneer started with Oooguruk because there was enough of a resource there for critical mass and an economic development.
With Oooguruk on production, you “look in the backyard and say, what’s next. And that’s what we’re starting to do now.”
Pioneer is already pulling in production from reservoirs it didn’t count on and is starting to look at production potential from leases it can reach from onshore, which could allow the company to “double, potentially triple the size of our current resource that we’re developing from the island.”
Work will be done this year and next to try to prove that up so Pioneer can continue growing in Alaska, Still said.
Pioneer envisions a couple of onshore drill sites, with drilling out under the Beaufort, but he said that while the resource is large it is challenged and is dependent on a pilot waterflood for success.
A lot of the challenges for Oooguruk expansion are “because you’re on the North Slope; you’re a long way from anywhere.”
Alaska can’t control the location of the resource, or the rock, but fiscal policy and regulations are in the state’s control.
Alaska has to compete with Lower 48 opportunities, and “the fiscal terms here aren’t nearly as good as what we can do down south,” Still said.
Cycle time for projects and capital costs are also better in the Lower 48.
Alaska has oil going for it, he said, but “execution risks keep getting worse,” both on issues the State of Alaska has under its control and on federal issues.
And with opportunities in Spraberry, in Eagle Ford and in the Barnett shale, “Alaska doesn’t have to compete with Alaska: Alaska’s got to compete with my backyard somewhere else.”
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