Appraisal delayedCaelus has said it is not going to drill a well in Smith Bay next winter Alan Bailey Petroleum News
According to a report by Alaska Public Media, Caelus Energy Alaska spokesman Casey Sullivan has commented that his company no longer plans to drill an appraisal well in its Smith Bay discovery next winter. Casey told Alaska Public Media that continuing low oil prices coupled with uncertainty relating to the current debate over state oil production tax policies had driven his company’s decision.
At the time of going to press, Caelus had not responded to an enquiry from Petroleum News about the report.
Following the drilling of two exploration wells in state leases in the shallow waters of Smith Bay in early 2016, Caelus announced a massive oil find in the Torok formation, at a depth of 5,000 feet below the bay. The company estimated as much as 6 billion barrels of oil in place, with some 2 billion barrels of this oil recoverable, potentially with initial production rates of about 200,000 barrels per day.
But the Torok rocks have relatively poor reservoir quality. And Caelus, so far, has only assessed the oil resource on the basis of well logging, rock samples obtained from the drilling and the analysis of seismic data. The oil is relatively light but, Caelus has said, wells would probably require hydraulic fracturing to enable adequate production rates.
Appraisal drilling Caelus needs to do some appraisal drilling, both to determine what oil flow rates might be achievable from the Torok reservoir and to verify the extent of the oil resource. The company had said that it planned to return to Smith Bay in the coming winter to drill a single appraisal well. However, the company has apparently decided to cancel that plan.
Smith Bay is located at an extremely remote location, on the Beaufort Sea coast towards the western end of the North Slope. Conducting drilling in the bay requires a major logistical exercise, involving the staging of equipment and supplies, and the construction of a very long ice road from the central North Slope. And, while an oil resource of the scale that Caelus has reported could justify major investment, initial development of the field, including the construction of an appropriate oil pipeline to the central North Slope, would be a very expensive undertaking.
Caelus has stated that first oil from a Smith Bay field could come within five years of field development starting, that the capital cost of the project might be in the range $8 billion to $10 billion and that viability would require a sustained oil price in the mid-$60s. The company has also suggested that the construction of a road between the Alpine field in the central North Slope and the town of Utqiagvik (Barrow) would knock $1 billion off the development cost.
Development would likely involve the drilling of 400 wells from four well pads, Caelus has suggested.
Development timescale Although Caelus has previously indicated a hoped for startup year of 2022 for a Smith Bay field, a delay in the appraisal drilling would clearly push back that expectation. In addition to the need for appraisal drilling and flow testing before a development decision, any federal permitting required for the project would presumably trigger the need for an environmental impact statement, the preparation of which might take a couple of years.
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