Pioneer Natural Resources said Aug. 1 that its Alaska subsidiary has signed an agreement with ConocoPhillips Alaska to acquire up to 50 percent working interest and potentially become operator of the Cosmopolitan unit in Cook Inlet off the lower Kenai Peninsula.
Three wells and a sidetrack have been drilled in the unit, Pioneer said, “establishing a significant oil column.” A 3-D seismic survey will be shot later this year to refine the estimate of recoverable reserves.
Dallas-based Pioneer acquired a 10 percent working interest in the unit from ConocoPhillips earlier this year, along with “the option to acquire up to an additional 40 percent working interest and possibly succeed ConocoPhillips as operator of the unit after the new 3-D seismic data has been acquired and interpreted,” Pioneer said in a press release. Pioneer said it would pay “a disproportionate share of the seismic acquisition and processing in exchange for the 10 percent working interest and option.” The new 3-D survey is expected to be completed this November.
Pioneer said the option gives it the right to acquire up to an additional 40 percent working interest and potentially become the unit operator “by paying cash or a disproportionate share of ConocoPhillips’ future costs.”
Leveraging reservoir characterization, low-cost development
Scott Sheffield, Pioneer’s chairman and chief executive officer, said in a prepared statement that Cosmopolitan “adds an established resource to our portfolio of commercialization projects and exciting new growth potential for Alaska.” He said Cosmopolitan is an “example of our strategy to add projects with previously discovered resources and low upfront investments that could generate strong economic returns and significant reserve additions for Pioneer.
“We hope to leverage our expertise in reservoir characterization and low-cost development to evaluate the commercialization options for the project.”
Cosmopolitan includes state and federal leases, a total of some 25,000 acres. The unit is approximately two miles offshore the lower Kenai Peninsula.
In an Aug. 2 conference call Sheffield said Pioneer is “continuing to look for discoveries by the majors” which it can commercialize with its “lower cost structure.”
Tim Dove, Pioneer’s president and chief operating officer, said work at Cosmopolitan will be to “further define the previous discovery and assess what would be the next steps” in a potential development. Dove said the well and sidetrack drilled by ConocoPhillips “tested at a stabilized rate of 600 to 800 barrels a day over different intervals that lasted for three to four months.” The discovery is two to four miles from shore, he said, and “would require a pipeline to deliver oil to a refinery about 65 miles away.”
Evaluation in Anchorage
Ken Sheffield, president of Pioneer Natural Resources Alaska, said Pioneer would do reservoir evaluation work for Cosmopolitan in Anchorage.
“We have a core group of technical people here in Alaska to evaluate and manage our investment decisions here,” Sheffield told Petroleum News Aug. 2. He said the Alaska office will draw on expertise in the home office for a lot of things, but said the company has “established most of the core competencies right here in Anchorage to do our evaluation work.”
Pat Foley, the company’s Alaska manager of land, commercial and regulatory affairs, said the Pioneer operation in Alaska is closer to the BP and ConocoPhillips model, as far as the percentage of work done in Alaska, than to companies like Anadarko and Kerr-McGee, where technical work is done elsewhere.
Sheffield said last year much more of Pioneer’s work was done in Dallas, because there were only a handful of people in Anchorage, “but as we’ve grown our staff we’re assuming more and more of the responsibilities here.”
Pioneer’s Anchorage office now has 21 people, compared to three people at the end of 2003, Foley said, and around 10 at the end of 2004. Geoscientists started arriving in Alaska about a year ago, although, Sheffield said, they had started working on Alaska from the Dallas office around January.
As for what’s next at Cosmopolitan, Sheffield said the picture of the reservoir that Pioneer has now “will be significantly improved after we acquire and interpret the seismic data.” After than, he said, Pioneer will work with ConocoPhillips “to look at a potential development plan and try to determine what the next step is going to be, and whether that requires more delineation drilling” or if the companies can move into a development phase. It’s what companies go through on every discovery, he said: “How much is it going to cost? How fast can you get it out of the ground? What’s the optimum development plan?”
The current exploration plan runs through late 2006, and Foley said that before that the companies will either have to file another exploration plan or a development plan for the unit.
First drilling in 1967
The oil accumulation at what is now called Cosmopolitan was discovered by Pennzoil in 1967 in the 12,112-foot vertical, Starichkof State No. 1, drilled from a jackup rig. The company recovered 30 barrels of 20 degree API gravity oil from a drill stem test at about 6,900 feet and 21 barrels from a drill stem test at about 6,800 feet. Pennzoil reported encountering the top of the Hemlock formation at 6,745 feet. A second well, also drilled in 1967, found some gas at 4,000 feet but water in the Hemlock formation at 7,355 feet some two miles from the first well.
When Phillips Alaska (now ConocoPhillips) filed a unit application with state and federal agencies in 2001 to form the Cosmopolitan unit from seven state and two federal leases, some 24,600 acres, it proposed wells just northwest of the unit formed in the 1960s. Phillips said it had done some chemical analysis of the Starichkof oil, which was thought to be low gravity, and believed that new drilling will show actual gravity is significantly higher.
Drilling began at the Hansen No. 1 in October 2001 from an onshore pad; state and federal agencies approved the unit in November 2001.
The initial plan of exploration required a well to the lower Tyonek sand interval; unit approval required acquisition of 3-D seismic or a sidetrack to the Hansen well. A sidetrack was drilled in 2003. Rick Mott, ConocoPhillips Alaska vice president of exploration and land, told an Anchorage audience in April 2003 that the Hansen sidetrack was being drilled from onshore with extended reach technology and what he called “the largest and most powerful drilling rig in Alaska.”
Mott said the Hansen No. 1 “went down about a mile and a half then out underneath the inlet about three miles.” He said the Hansen No. 1A, the sidetrack, “will go even farther out underneath the inlet.”
Partners at the time were Forest Oil and Devon. Forest officials told analysts in 2003 that the Hansen No. 1 tested oil in the Hemlock and Tyonek formations; Forest said the Hansen No. 1A was completed with a horizontal section through the Starichkof and Hemlock intervals, and said ConocoPhillips would be trucking oil to the refinery during an extended test.
State records show the Hansen 1A as a single-completion oil well.
State officials told Petroleum News in August 2003 that the state approved a 90-day extension of testing for the Hansen 1A.
In November 2004 ConocoPhillips told state and federal officials it would begin shooting 3-D seismic at Cosmopolitan within a year, and the Minerals Management Service has approved a geophysical application from Veritas DGC to shoot 3-D seismic beginning in September in an area starting offshore Anchor Point. Approval of a permit for a 3-D program in state waters in this area is pending.
