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Vol. 12, No. 47 Week of November 25, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Chevron ups stake

Back on North Slope, 2007-08 AK investment doubled, might again in 2009

Kristen Nelson

Petroleum News

Chevron is back exploring on the North Slope — for the first time since the early 1990s — and will start a two-year drilling program at its White Hills exploration prospect later this year.

John Zager, Chevron’s Alaska assets manager, told the Resource Development Council’s annual conference Nov. 14 that since Chevron acquired Unocal in 2005 and made the decision to stay in Alaska the company has “really upped the ante in investment in Alaska.”

He did not discuss total investment dollars, but he said Alaska investment has been approximately doubled for 2007 and 2008 and could potentially be doubled again by 2009. “So we’ll be up to the several hundred million dollar range in the year 2009.”

Chevron is “being much more aggressive in the Cook Inlet as well as the North Slope. We see a lot of opportunities in both those areas,” Zager said.

Cook Inlet work includes both development and exploration drilling, and expansion of natural gas storage capacity.

The Cook Inlet focus is on oil. Production today from Cook Inlet oil fields is 90 percent water, Zager said, so Cook Inlet “oil fields are severely challenged on costs.”

Nabors 106E to White Hills

While Chevron’s main North Slope exploration activity “is focused around our exploration program at White Hills,” the company is “also looking within existing fields where we have ownership along with the major producers on the North Slope.”

Between Chevron and Unocal legacy North Slope assets, we “own a little bit of everything,” Zager said.

On the exploration side, the White Hills work came together relatively quickly: It’s been just four to five years since the idea was put forward by the company’s exploration group.

Zager said the bulk of spending on White Hills will be in the next couple of years, an estimated $160 million to evaluate the prospect.

He said Nabors Rig 106E is ready to be mobilized and if Chevron is successful in its two-year exploration program it thinks it could see production in the seven- to 10-year timeframe.

A lot of field work has been done at White Hills over the last couple of seasons, Zager said, and quite a bit of seismic over the last couple of years.

Snow roads are being built at White Hills and equipment is being mobilized. The purpose-built lightweight AC rig, Nabors 106E is a new generation rig and can be broken down into 53 different loads for moving — 38,000 pounds is the heaviest load, Zager said. The rig is “quite a bit lighter, one-third to one-half lighter than a traditional rig,” he said. The rig drilled its first well at Happy Valley in October. Zager said Chevron wanted to do the rig’s shakedown in a friendlier climate than on the North Slope in the winter.

New oil well in Cook Inlet

At Granite Point Chevron is setting up a rig to spud the first new oil well in Cook Inlet in quite a few years from the Anna platform. Other activities in the MacArthur River field will be in the 2009 timeframe, Zager said.

On the natural gas side, the Happy Valley well is geared to the Enstar Market, as is planned drilling at Steelhead.

In the second quarter of 2008 Chevron plans a gas well off the Anna platform, targeting a large structure never drilled in the shallow gas horizons.

Chevron is also continuing to expand its Cook Inlet natural gas storage, he said. Currently the company can deliver 70-80 million cubic feet a day from storage to meet peak demands on a cold day.

Partnership with state

Zager said partnership with the state is essential. The industry provides teams, prospects, skills, technology, capital and people, he said, but needs a return on people employed, not just capital. It’s very hard to come by teams to do the work now, he said.

He said the state does a good job of providing access to land through areawide lease sales and has reasonable permitting requirements, although there is room for improvement there.

What is needed is a competitive and stable fiscal regime.

Zager, speaking a couple of days before the Alaska Legislature passed an increase in the production tax, said he has tried to figure out the “disconnect” between what industry is saying and what consultants are saying to the Legislature. One disconnect, he said, seems to be that consultants are looking at the industry and production today and are not looking at production five to 10 years out. They also are assuming that the same amount of production will occur under different tax scenarios, an assumption which doesn’t take into account the impact of taxes on investment, Zager said.

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