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The EXPLORERS 2006 - Anadarko buys Kerr-McGee Deal includes North Slope discovery; Anadarko to drill Jacob’s Ladder, two wells at Nikaitchuk in 2006-07 Kay Cashman Petroleum News
Anadarko Petroleum’s $24.3 billion takeover of fellow independent Kerr-McGee left State of Alaska officials wondering what would become of the offshore Nikaitchuq oil discovery northeast of Prudhoe Bay, the development Kerr-McGee was expected to sanction at the end of 2006 or early 2007.
The acquisition more than doubled Anadarko’s market value and made it the largest U.S.-based E&P independent.
Anadarko said it would pay down the debt from the deal over an 18 to 24 month period by doing a number of things, including selling non-core properties from Kerr-McGee.
“There are no sacred cows,” Jim Hackett, Anadarko’s chairman and chief executive officer, said in a June 23, 2006, statement.
“We are creating a combined company with industry-leading positions in the deepwater Gulf of Mexico and the Rockies, two of the fastest-growing oil and natural gas producing regions in North America,” Hackett said.
Anadarko OKs pilot wells But any concerns state officials had about the acquisition slowing down development plans for Nikaitchuq were alleviated by Anadarko’s decision to proceed with a planned pilot program at the prospect during the winter of 2006-07.
“We’re moving forward with the winter drilling program as originally planned by Kerr-McGee,” Mark Hanley said Sept. 7. Hanley is the company’s top official in Alaska.
The news came on the heels of the Alaska Department of Natural Resources commissioner denying a royalty modification request from Kerr-McGee for 14 state leases in the proposed Nikaitchuq oil development area.
“The original plan was to go forward with a pilot program regardless of royalty relief,” Hanley said, noting that in evaluating Nikaitchuq for development, Anadarko will take into account everything from the results of the 2006-07 drilling, to royalties, to the impact the state’s new production profits tax will have on project economics.
The commissioner had been holding off on a decision, waiting to see what the Alaska Legislature passed for a new production tax.
The commissioner told Kerr-McGee he was not comfortable making a decision until he knew what the new fiscal regime would look like because in order to qualify for royalty modification an applicant must show a project is not economic without a royalty reduction.
As it turned out, the production tax signed into law Aug. 22, 2006, “materially improved” the economics of the Nikaitchuq development, DNR said.
In his decision the commissioner said under the new tax and over the life of the project Kerr-McGee would pay, “on a discounted basis, about $120 million less in taxes than under the previous fiscal regime.”
Bill Van Dyke, the acting director of DNR’s Division of Oil and Gas said, “The last we heard was that if the pilot wells are successful, then they’ll (Anadarko) probably sanction the project and go forward.”
“My understanding (of the two-well pilot program) is they will be testing both their drilling technology and their completion and production assumptions,” he said.
The vast majority of oil in the field is viscous oil in the Schrader formation, Van Dyke said. Anadarko will be drilling Alpine-like wells, he said, “but the Nikaitchuq wells will be a lot shallower, at a much bigger angle than Alpine.”
First independent-operated North Slope production If Anadarko ultimately approves development, Nikaitchuq will have the first independent-operated standalone production facilities on the North Slope. Only its phase I production from one of four pads will be processed at the nearby Kuparuk oil field facilities, which are operated by ConocoPhillips.
Discovered in 2004, at its peak Nikaitchuq is expected to produce 60,000 barrels of oil (and small amounts of gas) per day. The field is thought to hold between 100 million and 200 million recoverable barrels of oil.
Anadarko to drill Jacob’s Ladder Meanwhile, Anadarko was moving ahead to drill its third Anadarko-operated well in Alaska.
According to paperwork the company filed with the Alaska Department of Environmental Conservation on Oct. 12, 2006, Anadarko expected to drill one exploration well at its eastern North Slope Jacob’s Ladder oil prospect in the winter of 2006-07.
The company told DEC the well would be drilled from an onshore ice pad approximately 17 miles southwest of Badami and 20 miles southeast of Deadhorse.
In 2006, Anadarko secured two partners — first London-based BG Group and then Arctic Slope Regional Corp.—to help carry the cost of exploration at Jacob’s Ladder, which is off the North Slope road system.
Jacob’s Ladder is considered an oil prospect in the Wahoo formation of the Lisburne group, with a potential reservoir in eroded cavities in Lisburne carbonate rocks. The play resembles the huge Yates field in Texas (see “New Lisburne play at Jacob’s Ladder” in the Nov. 13, 2005, edition of PN). The unit also includes a sizable prospect in the Ivishak formation of the Sadlerochit, equivalent rocks to the reservoir of the Prudhoe Bay field, 10 miles southeast.
According to Alaska Division of Oil and Gas paperwork, the Lisburne prospect in Jacob’s Ladder “represents a previously unrecognized play type on the North Slope.”
The division said “it has been proposed that the Lisburne (Wahoo formation) prospect may yield a range of 20-660 million barrels of oil equivalent and the Sadlerochit (Ivishak formation) prospect may yield a range of 50-800 million barrels of oil equivalent.”
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