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Oooguruk expansion application complete Pioneer Natural Resources picked up needed leases to fill in unit, got royalty reduction, built gravel island; pipelines next Kristen Nelson Petroleum News
Pioneer Natural Resources Alaska has completed an application to expand its North Slope Oooguruk unit, which now includes 12 State of Alaska oil and gas leases, with an additional seven state leases. The Alaska Department of Natural Resources said Nov. 30 that the expansion would increase the unit’s size by 150 percent, from 20,394 acres to 50,883 acres.
Pioneer applied to have state leases ADL 355036, 355037, 355038, 355039, 389959, 389960 and 379301 added to the unit last year; the Alaska Department of Natural Resources’ Division of Oil and Gas asked for more information and found the application complete in late November. The application is now out for 30-day public comment; the division then has 60 days to issue a decision.
Oooguruk is offshore the North Slope and adjacent to the Kuparuk River unit on the east.
Six of the seven additional leases are in a block on the southwest of the existing unit, which was approved in 2003; the seventh lease is on the eastern edge of the unit, between existing unit leases.
Pioneer did not control these seven leases when the unit was formed. It subsequently acquired four of the leases from ConocoPhillips and the other three from Anadarko Petroleum.
Company has drilled three wells Pioneer originally partnered with Armstrong Alaska, which subsequently sold its Alaska interests to ENI Petroleum Exploration; unit leases are now held 70 percent by Pioneer and 30 percent by ENI.
Armstrong submitted a plan of operations for Oooguruk in July 2002; in December of that year, Armstrong assigned 70 percent of its working interest in nine leases to Pioneer, which became operator and began an exploration drilling program targeting the Kuparuk C sands.
Pioneer submitted an application for the Oooguruk unit in January 2003, which the division approved in July 2003. Pioneer spud the Ivik 1 well in February 2003 and went on to drill the Oooguruk 1 and the Natchiq 1.
DNR approved royalty modification for nine leases in February 2006, the same month in which Pioneer approved unit development.
Four of the leases were acquired in 1983 on a net profit share basis, with 10-year primary terms of a fixed 12.5 percent royalty rate and 30 percent net profit share for the state. These four leases were committed to the Kuukpik unit, which terminated in 2001. Prior to lease term expiration, a well was drilled on each lease and the wells were certified capable of producing in paying quantities, extending the leases, primary terms indefinitely.
The royalty modification requested a 5 percent royalty rate and a 30 percent net profit share to the state for the NPS leases and a modification from 16.6667 percent to 5 percent on five other leases.
DNR implemented royalty relief as follows: a 5 percent royalty rate for production from delineated pools until NPS payments first become due to the state from ADL 355036, which occurs when costs of the development are paid off.
In the first month following the month when NPS payments first become due, a four-year royalty modification phase-out begins for all nine leases subject to the royalty modification, with a 1.875 percent increase in the royalty rate until that rate reaches 12.5 percent for the four leases with a 12.5 percent royalty; NPS remains at 30 percent for those leases.
At the beginning of the fourth 12-month period after NPS payments become due from ADL 355036, the royalty rate will immediately be restored to 16.6667 percent for the non-NPS leases.
The decision also required that the project be sanctioned by Dec. 31, 2007; sanction occurred in 2005, with gravel island construction the winter of 2005-06, production modules going in in 2007, as well as the subsea pipeline. Development drilling is expected to start in 2007, with first production in 2008.
Area of known discoveries The state said there are six wells certified capable of production in paying quantities within the proposed expansion area — five on net profit share leases for which Pioneer received royalty relief — and two other certified wells in the vicinity of the unit.
The eight wells certified by the state are: Exxon Thetis Island 1, in the northeast part of the unit; ARCO Kalubik 1; and four Colville Delta wells (Texaco Colville 1, 1A, 2 and 3) that lie on the four net profit share leases. The two other certified wells, outside and to the west of the unit, are the Kuukpik 3 (approximately two and one half miles) and the Amerada Hess Corp. Colville 25-13-6 (approximately a quarter of a mile).
Pioneer Natural Resources President and COO Timothy Dove said in a November analysts’ call that the company is looking at adjacent opportunities to possibly tie into Oooguruk.
He said there are “known reserves in and around Oooguruk that we’re now evaluating for potential tie-ins as we get closer to actual production. In fact we know that there’s a known resource about two to three miles away that’s 20 million to 30 million barrels, which has several wells already having penetrated it.”
“If you’re standing on Pioneer’s island and look around in a two- to three-mile radius you’ll see an area that was initially drilled mainly by Texaco and ARCO,” Bill Van Dyke of the Alaska Division of Oil and Gas told Petroleum News in November.
“To the southwest are ConocoPhillips leases and the Makua wells Conoco is looking at drilling,” he said.
While Pioneer is developing a reservoir similar in age to Alpine, there is “also a chance to pick up a Kuparuk reservoir.”
“There’s always been good oil charge in the area from Oooguruk to Alpine,” Van Dyke said.
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