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

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

Smith Bay deferred again, Nutrien still working to get gas to re-open Nikiski plant

Kay Cashman

Petroleum News

Rumor has it Caelus Energy Alaska will use part of the funds it receives from Eni for its eastern North Slope acreage (see page 1 story in this issue) to either test its two Tulimaniq wildcat wells in Smith Bay off the coast of the National Petroleum Reserve-Alaska or do more appraisal drilling at the prospect. An exploration program was planned for early 2017 and again in early 2018, but both were deferred by the local subsidiary of the Texas independent.

But the rumors are wrong, Pat Foley, senior vice president of Caelus Energy, told Petroleum News on Aug. 29: “Caelus will not be conducting work at Smith Bay this winter.”

In early 2016, Caelus claimed it made one of the largest recent oil discoveries in Alaska or elsewhere with its two Tulimaniq wells, announcing 6 billion to 10 billion barrels of oil in place.

Thus far, Caelus has not been able to conduct flow tests for the oil pool.

Caelus has cited low oil prices and uncertainty over production tax policy at the state level as its reasons for not returning to the area.

Tulimaniq is far offshore. Reportedly, $90 million of the $150 million it spent to drill the prospect’s two wells was spent on logistics, requiring a $60 oil price to develop the field, per Caelus.

Still, some government geologists are excited about Tulimaniq.

Petroleum geologist Paul Decker from Alaska’s Division of Oil and Gas talked to Petroleum News in June about the nature and significance of the new finds. Decker sees the new Nanushuk/Torok oil plays as opening the possibility of further significant oil discoveries to the west of the central North Slope. The plays may also prove valuable as a geologic paradigm for oil prospects in the newly opened 1002 area of the Arctic National Wildlife Refuge, Decker said.

The three recent major finds consist of the Pikka/Horseshoe trend in the Nanushuk in the Colville River delta region, discovered by Armstrong and Repsol and being developed by their partner Oil Search, the Willow discovery in the Nanushuk of the northeastern National Petroleum Reserve-Alaska, discovered and headed to development by ConocoPhillips, and Caelus’ major oil pool in the Torok under Smith Bay, Decker said.

- KAY CASHMAN

Nutrien still actively seeking gas supply

Nutrien, which was formed with the merger of Potash Corp. and Agrium in early January, is still hoping to re-open its Kenai Peninsula fertilizer facility, its Alaska manager Fred Werth told Petroleum News Aug. 27.

A long-term natural gas supply in Cook Inlet is crucial to re-opening the facility, and Werth said Nutrien is “actively engaged in really trying to sort out” the situation.

“Gas price is our biggest challenge,” natural gas feedstock being the highest cost component in the manufacturing process, Werth told PN in January.

The former Agrium facility employed 400 well-paid Alaskans when in full operation. It closed in 2007, when the Cook Inlet gas fields were in significant decline and the facility was unable to secure enough supply to operate. The inlet gas industry has since experienced a resurgence of gas exploration and production.

What Canada-based Nutrien, which trades as NTR on the Toronto and New York stock exchanges, offers natural gas producers is a stable, long-term gas contract. Although the price Nutrien can justify would be under current market value, which is currently high compared to other markets, it would not be subject to the fluctuations of consumer demand and thus allow producers to make long-term development plans, Werth said in January.

Agrium’s North Kenai/Nikiski facility had been the second largest producer of ammonia and urea in the United States, most of which was sold overseas to South Korea, Mexico and Taiwan.

“The greatest advantage of the merger was that it brought together Potash Corp. and Agrium’s marketing and production strengths, making products more readily available across North America,” Werth said in January, noting the merged company traded all over the world.

The Alaska facility, consisting of two utility, two ammonia and two urea plants, “is strategically located in North Kenai on a deepwater port to distribute to the Pacific Rim,” he said.

Potash and urea ammonia are used in caring for crops. Potash adds potassium, while urea ammonia supplies nitrogen.

The fastest developing markets for urea are Southeast Asia and East Asia.

Urea is the most popular form of solid nitrogen fertilizer, particularly in the developing regions of the world. Currently, the Southwest Asian region consumes more than 55 percent of the urea produced worldwide.

“They don’t need any special equipment to put urea on their fields … they can put it on with a gunny sack and a coffee can,” Werth explained in January.

Liquid nitrogen, which the North Kenai Nutrien facility would also produce, is primarily used in North America, as it is sprayed on. Before U.S. farmers used nitrogen, their average yield was 100 bushels an acre for corn; today production is 250 bushels per acre.

The re-opening of Agrium’s mothballed fertilizer facility could provide a significant economic boost for the region.

Reportedly, rehabilitating the facility for a restart would cost about $350 million, whereas the cost for Nutrien to construct a similar facility elsewhere in the Pacific Rim could run $2-3 billion.

Werth did not confirm or discuss these estimates.

- KAY CASHMAN

More positive headlines for Alaska’s North Slope

On Aug. 12 and Aug. 23 OilPrice.com carried upbeat stories about the renewal of Alaska North Slope exploration, triggered by the discovery of the “massive” Armstrong/Repsol Pikka oil field in the overlooked Nanushuk formation in 2015.

OilPrice.com’s first story, “Why Is Big Oil So Excited About Alaskan Crude?,” dwelled on the data release of several previously overlooked oil deposits, including Pikka, by the Alaska Division of Oil and Gas, and provided details about the upcoming November state lease sale.

“After years of diminishing returns in the once mighty North Slope, Pikka is just one of three major recent finds that revived interest in the North Slope,” wrote Haley Zaremba, referring to Pikka, Willow and Tulimaniq.

The second story, “Alaska’s Oil Renaissance,” referenced new research from IHS Markit, showing “the North Slope’s crude output could increase by as much as a whopping 40 percent in the next eight years.”

The North Slope, “previously considered as a mature basin, is now being touted in the media as the once and future ‘super-basin’ thanks to an estimated 38 billion barrels of oil equivalent in remaining recoverable resources,” Zaremba wrote.

- KAY CASHMAN






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