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Vol. 20, No. 47 Week of November 22, 2015
Providing coverage of Alaska and northern Canada's oil and gas industry

The Producers 2015: Caelus Natural Resources Alaska Inc.

ERIC LIDJI

For Petroleum News

Caelus Energy LLC acquired the Alaska assets of Pioneer Natural Resources Alaska Inc. in 2014 and became the operator of the offshore Oooguruk unit on the North Slope.

Through the acquisition, the Dallas-based independent acquired existing production and infrastructure at Oooguruk and retained a majority of the employees of its predecessor company. Next, Caelus announced a major financial partnership that will allow the company to fund operations. Going forward, operations should become more technical and logistical as Caelus advances construction of a satellite called the Nuna development.

Like many small players in the global oil industry, Caelus Energy is a relatively new company created by executives who have had experience in other parts of the world.

In the 1990s, Caelus Energy President and CEO Jim Musselman and various colleagues acquired a struggling independent called Triton Energy. They oversaw discoveries in Colombia, Southeast Asia and offshore West Africa. Triton brought the West Africa discovery online within 18 months and later sold the company to Amerada Hess.

Next, Musselman and his investors founded the independent Kosmos Energy, which made a discovery offshore Ghana that justified an initial public offering in 2011.

Instead of staying with the newly public company, Musselman created Caelus Energy, which searched for opportunities and found one in Alaska. “If you’re not nervous and a little bit worried or a bit scared of doing business in hostile places, you’re done,” he told Petroleum News in October 2013, when Pioneer announced plans to sell its Alaska subsidiary to Caelus for $550 million. In March 2014, the parties lowered the sale price to some $300 million, which cleared the path for the two sides to close in April 2014.

Early on, Caelus described big plans for Alaska. The company hoped to raise more than $1 billion for future development work and saw the potential to spend as much as $1.5 billion in Alaska over a five-to-six-year-period. In April 2014, as part of its work to close on the purchase of Pioneer Natural Resources Alaska, Caelus formed a strategic partnership with the international investment company Apollo Global Management. The partnership provided near-term funds and an avenue for borrowing money in the future.

The Oooguruk unit

ARCO Alaska Inc. discovered the Oooguruk field in 1992, and independent Armstrong Oil & Gas Inc. delineated the “Northwest Kuparuk” prospect in the early 2000s.

As has generally been its strategy in Alaska, Armstrong brought on a larger partner - in this case the Texas-based independent Pioneer Natural Resources Inc. Pioneer eventually acquired a 70 percent working interest in the leases and became unit operator, with the Italian major Eni Petroleum holding the 30 percent minority interest in the leases.

In 2008, after just five years of work, Pioneer became the first independent producer on the North Slope when it brought Oooguruk online from a six-acre artificial gravel island.

The company initially developed two pools: the Kuparuk and the larger and deeper Nuiqsut. The company later began developing the Torok, which is above the Kuparuk.

After a delineation campaign encountered a large reservoir in the southern end of the unit, and improved completion techniques increased production from existing wells, Pioneer sold the Oooguruk unit to Caelus in late 2013 to focus on Lower 48 properties.

Through early 2015, the Oooguruk unit included 40 wells - 25 into the Nuiqsut, five into the Kuparuk, four into the Torok, five outside participating areas and one disposal.

The entire Oooguruk unit produced 21.5 million barrels of oil through July 2015.

The Nuiqsut pool

In early 2015, Caelus drilled and hydraulically fractured three horizontal wells into the Oooguruk-Nuiqsut pool - ODSN-43, ODSN-42B and the ODSN-03i injector.

The wells largely stepped beyond previous development efforts. The company drilled ODSN-43 in the second expansion area, in the southwest of the unit. ODSN-42B was sidetracked from the existing ODSK-42A well into “an untested area of the eastern Kalubik fault block.” ODSK-42 and the ODSK42A sidetrack had both passed through the Oooguruk-Nuiqsut formation to reach targets in the Oooguruk-Kuparuk formation.

The ODSN-03i began as a production well but was converted to “support high rate producers in the Ivik fault block.” Similarly, Caelus converted the previously drilled ODSN-48i to an injection well, after 15 months of production, to support ODSN-43.

The company also drilled the ODSN-22 well earlier this year, although fracture stimulation work is scheduled for early 2016. And the company recently worked over the ODSN-01 well to repair a casing string damaged during workover activities last year.

During the current cycle, from September 2015 to August 2016, Caelus proposes to complete ODSN-22 and drill three injectors - ODSN-11i, ODSN-06i and ODSN-21i.

ODSN-11i would target the northern-most area of the Colville Delta fault block. ODSN-06i would target the southern row of the Ivik fault block. ODSN-21i would be near ODSN-22 and ODSN-48 in the expansion area, in the southwest corner of the unit. The ODSN-21i injector is scheduled for hydraulic fracture stimulation in early 2017.

Also within the past year, Caelus stimulated the ODSN-19i injection well, which was meant to help the well match higher production rates from recently stimulated producers.

In addition to those wells, Caelus expects to drill and complete one sidetrack this year, although plans depend of scheduling and rig availability. The likely candidates for a sidetrack are ODSN-18, ODSN-29 and ODSN-37, which are spread throughout the unit.

The company is also planning to work over ODSN-28 to repair casing and install an electric submersible pump and between three to five undetermined workover projects.

The Oooguruk-Nuiqsut pool produced some 12.5 million barrels of oil through July 2015.

The Kuparuk and Torok pools

Caelus is planning no activities for the Oooguruk-Kuparuk pool this year.

The company said production “remained strong” from ODSK-14 and ODSK-41, which are supported by the ODSK-38i and ODSK-35Ai injection wells for water flooding.

But the company shut-in the ODSK-33 production well “due to high water-cut and significant hydraulic backout effects” to other wells from the Oooguruk drill site.

The company said it has completed a surveillance program of the water samples returned through Oooguruk-Kuparuk production wells and is beginning to evaluate the results.

The Oooguruk-Kuparuk pool produced some 8.3 million barrels of oil through July 2015.

Caelus also hasn’t planned any activities for the Oooguruk-Torok pool this year.

The company said development of the formation “progressed as planned.” The ODST-39 well continues to produce, but the company shut-in the ODST-45A sidetrack in May 2014 after an electric submersible pump and a packer vent valve failed. The company is planning to work over the well. Similarly, the ODST-47 well remains shut-in until the company can repair a mechanical failure created during completion activities in 2013.

The horizontal ODST-46i injection well was shut-in for much of the current development cycle “due to close-approach drilling concerns and limited water supply,” Caelus wrote.

The Oooguruk-Torok pool produced some 796,000 barrels of oil through July 2015.

The Nuna Development

Every Oooguruk unit well drilled into the Oooguruk-Kuparuk pool and the deeper Oooguruk-Nuiqsut pool has also passed through a reservoir in the Torok formation.

In 2010, Pioneer decided to explicitly target the Torok formation. Later that year, after studying drilling results, the company proposed the Nuna development project to target resources in the Torok formation that were too far to reach from the existing Oooguruk island. An exploration well and a subsequent appraisal well in the southern end of the unit yielded a discovery estimated in the range of 75 million to 100 million barrels of oil.

Before it sold its Alaska assets, Pioneer launched a range of initiatives to prepare for Nuna, including several expansions of the unit boundaries and an infrastructure program.

Caelus had initially expressed great enthusiasm for the Nuna project when it acquired the Oooguruk unit. But after studying the project in greater depth, the company determined it would need some form of royalty relief to make the $1.4 billion project economic. The state agreed to reduce the royalty rate on five leases to 5 percent until Caelus recovers its costs. In March 2015, Caelus announced that it had “fully sanctioned” the Nuna project.

In the first quarter, the company installed the Nuna Drill Site 1 pad and an associated access road two miles west of Kuparuk River unit Drill Site 3S, according to a recent plan of development. The company also continued engineering work for its onshore production facilities and ordered long lead items. This past winter, the company commissioned a 3-D seismic survey over some 70 square miles of the area. The company has also begun permitting Nuna Drill Site 2, which is being considered for a later date.

In the current development cycle, which runs from August 2015 to August 2016, Caelus expects to complete facility design and integration between the new drill site and the existing Oooguruk drill site and Kuparuk River unit facilities. The company also expects to start building modules in early 2016, install flowlines in early 2017 and install production facilities between late 2016 and the scheduled launch of operations in 2017.

The work is part of what Caelus is calling the first phase of the Nuna project, which would access resources too far to reach from the drilling facilities at the existing Oooguruk gravel island. Nuna would drill extended reach wells from a new onshore pad.



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