Economics have quickly altered Linc Energy Alaska Inc.’s exploration efforts.
As global oil prices fells and local natural gas supplies increased, the local subsidiary of Australian independent Linc Energy Ltd. scaled back its development plans for the Umiat oil field and suspended its underground coal gasification program in the Tyonek region.
When Linc Energy arrived in Alaska in March 2010, it planned to use conventional natural gas exploration to fund a more complex underground coal gasification exploration program. The company initially acquired 123,000 acres in the Cook Inlet region from San Francisco-based GeoPetro Resources. The acreage included a block near Point MacKenzie along Knik Arm and a block at Trading Bay on the west side of the inlet.
The following year, the Alaska Mental Health Trust land office issued an exploration license for Linc Energy to conduct underground coal gasification exploration on 181,414 acres in three areas: on the east side of Cook Inlet near Nikiski, on the west side of Cook Inlet near the Beluga Power Plant and in the Interior region around Healy and Nenana.
Also in 2011, Linc Energy gained control of the Umiat oil field in the foothills of the Brooks Range Mountains by acquiring the small independent Renaissance Alaska LLC.
Through various expirations and relinquishments, Linc Energy no longer owns any state leases but still holds the exploration license and federal leases at the Umiat prospect.
Early exploration
By summer 2010, Linc Energy had drilled the 6,323-foot LEA No. 1 well near Point MacKenzie using information from seismic surveys and exploration wells going back to the 1960s and building upon preliminary permitting activities undertaken by GeoPetro.
Even though the well encountered gas-bearing horizons and coal seams, the company determined the structure was “too tight” to be developed without “swabbing” the well with large amounts of formation water. “The conclusion from the testing is that although gas is trapped within the coal, there is not sufficient natural fracturing in the coal to allow for the recovery of commercial quantities of gas,” the company announced at the time.
Statements from company officials suggested enthusiasm for returning to its leases to drill more exploration wells. Unfortunately, the company lost a large portion of the Cook Inlet leasing position through expiration and lost more when the state rejected a request to form the Angel unit over state and Alaska Mental Health Trust leases around LEA No. 1.
Umiat
Instead, Linc Energy turned its attention to the Umiat field.
Umiat is among the largest discovered and undeveloped oil fields in Alaska. The U.S. Navy discovered the field in 1946, during an exploration campaign in the National Petroleum Reserve-Alaska to increase domestic oil supplies after World War II. The Navy commissioned 11 wells by 1952 and returned in 1979 to drill a deeper test well.
That deeper well was the last exploration work at Umiat for decades. Even though the field was known to be large, it was far from existing infrastructure and the unusual geology in the region stymied existing technologies. In the early 2000s, private companies including Arctic Falcon Exploration, Renaissance Alaska and Rutter and Wilbanks began taking an interest in the project, and state officials considered building a road to the area as a way to improve the economics of remote resource development.
By the time Linc Energy acquired the prospect in June 2011, the various challenges appeared to be surmountable. The company was eager to develop the field, oil prices were near record highs, the state-sponsored road project was progressing and improved drilling technologies suggested a way to overcome the difficult geology of the region.
The persnickety nature of Arctic exploration upset many of those advantages.
“Logistical and weather issues,” including “low snow levels which affected snow road development,” superseded a five-well program planned for early 2012. Then, light snowfall and extreme cold snaps shortened a four-to-five program in early 2013.
Instead, Linc scaled back the program to two wells and only completed one - Umiat No. 18. The vertical well collected 300 feet of core and encountered 100 feet of net oil pay in the Lower Grandstand. Mechanical problems prevented a flow test and forced the company to suspended operations and cold stack the Kuukpik No. 5 rig on location.
The shallow Umiat reservoir is partially embedded in permafrost. One of the curiosities of the initial Navy-led program was the vast difference in productivity between relatively nearby wells. A federal petroleum engineer suspected that drilling mud was thawing the permafrost and allowing water to enter the formation, which would freeze the sand and plug the wells. As a precaution, Linc used a chilled mineral oil drilling mud and a “progressive cavity pump” for its flow test “in order to prevent heat in the borehole from establishing a ‘thaw bubble’ in the permafrost and potentially destabilizing the well bore and surface facilities,” as President of Oil and Gas Operation Scott Broussard put it.
After its mechanical difficulties, Linc Energy decided to use an open-hole completion technique in the future, just as the Navy did originally. By drilling without casing or lining, an open-hole technique allows reservoir fluids to flow directly into a well bore.
The company completed its exploration program in early 2014 with the 4,100-foot Umiat No. 23H well, the first horizontal well ever drilled at the field and the first successful flow test at the field in decades. The well produced at a sustained rate of 250 barrels per day and a peak rate of 800 barrels per day, according to the company. With a gas drive installed, the company estimated production as high as 2,000 barrels per day.
Even though the mechanical difficulties complicated a side-by-side comparison, the results gave Linc Energy some direction about its drilling and completion strategy.
“We have now proved that the oil flows easily from the Umiat reservoir with very good permeability and that the drilling process of utilizing horizontal wells with slotted liners with ESP down well pumps as per our commercial design has been a success,” then-CEO Peter Bond said in a statement at the time. “And with this success and the knowledge gained from last year’s drilling program, Linc Energy now has clear a path for the commercial development of the billion barrel (original oil in place) Umiat field.”
Offer for Umiat
In September 2014, Linc Energy announced “unsolicited expressions of interest” to sell the Umiat field and conventional assets in Wyoming to an unidentified buyer.
The company launched “a formal process to work with additional parties who have expressed an interest in the potential acquisition of the company’s entire USA based oil and gas portfolio” and planned to make a decision by the end of the year. In April 2015, the company remained “in discussions with a number of interested parties” but had yet to make a decision and blamed the delay on “the recent oil and gas market downturn.”
The status of those discussions was unchanged in updates released in September and November 2015, even as Linc Energy advanced preliminary development work.
As engineering and design activities progressed, Linc Energy changed the scope of its program. In October 2014, the company proposed an initial Umiat development with as many as 70 wells. By June 2015, the program had grown to include approximately 13 drilling pads to accommodate some 150 wells, with drilling to begin as early as 2021.
In an October 2015 annual report, the company greatly scaled back those plans. The updated program included five drilling pads with approximately 35 development wells targeting the Upper and Lower Grandstand formations. The program would use horizontal wells with lateral sections measuring approximately 5,000 feet. Wells would be arranged in an 80-acre drainage pattern, and well spacing would be 900 feet.
Under a revised timeline, the company would conduct environmental fieldwork through the end of 2016, advance permitting through late 2019 and continue permitting activities and front-end engineering through 2019 and 2020. Drilling would begin in late 2020 or early 2021. Production would begin as early as late 2022 and increase to a peak of approximately 45,000 barrels per day by 2025 before gradually trailing off through 2047.
The company later revised its peak production estimates down to 30,000 barrels per day, which seemed to represent a change in processing capacity rather than anything geologic.
The smaller development program, combined with persistently low oil prices, led Ryder Scott Company LP to reduce its estimate of the probable (2P) oil reserves at the field by 36 percent and the probable and possible (3P) oil reserves at the field by 25.4 percent.
The updated report estimated 2P reserves of nearly 99 million barrels of oil equivalent (down from some 154.6 million barrels in the previous report) and 3P reserves of some 144.7 million barrels of oil equivalent (down from more than 194 million barrels).
Generally, “probable” means the estimate has at least a 50 percent chance of actual recovered volumes meeting or exceeding the P2 estimate, and “possible” meaning at least a 10 percent chance of actual recovered volumes meeting or exceeding the P3 estimate.
With the state having since abandoned plans to build a road in the face of economic and political pressures, Linc Energy also began addressing transportation logistics at Umiat.
Based upon allowable road grades, environmentally sensitive areas and a desire to be near the Toolik Research Station, the company narrowed 12 potential routes down to six and then to three. The Toolik East route would lead northwesterly from the Dalton Highway north of Pump Station 4 and the Toolik Research Station. The Franklin Bluffs route would head south-southwest from the Franklin Bluffs staging area north of Pump Station 2. The Meltwater route would use existing roads through the Prudhoe Bay and Kuparuk River units and continue south and then southwest along a newly built road.
UCG suspended
While Umiat advanced, Linc Energy was also pursuing underground coal gasification.
Initially, the company proposed a three-phase program: a single gasifier on a 90-day trial monitored for one year, a panel of three to six gasifiers on a one-year trial and finally a working underground coal gasification project combined with surface gas-to-liquids technology to produce some 20,000 barrels per day of various synthetic diesel products. The process synthesizes “natural” gas by injecting air and water into an ignited coal seam. The carbon in the coal and the hydrogen in the water combine to form methane.
Linc Energy appears to have drilled four stratigraphic core holes in the Tyonek region and one in the Kenai region. By late August 2015, the company said commercial discussions with “existing and new participants” in the Cook Inlet region were “well progressed.” And by early October, the company was estimating local demand for synthesized natural gas at 35 billion cubic feet with additional demand overseas through exports. The company said it was finalizing a commercial pathway for constructing a proposed synthesized natural gas hub in the region as well as “several supplier agreements” that would allow it to sell synthesized natural gas and carbon dioxide.
But in November, Linc suspended the program: “The Alaskan UCG project has been paused with the intention to reconsider this endeavor when market conditions recover and a more sustainable long-term outlook can be determined. The team is presently exploring options to limit our ongoing exploration liabilities via assignment of the tenements.”
