A year ago, Repsol E&P USA Inc. seemed to be on the verge of development.
The American subsidiary of Spanish supermajor Repsol SA had announced three discoveries following its third season of exploration activities in Alaska. Officials described development as being something of an inevitability, to be delayed only by the uncertainties of regulatory systems and taxation. With voters subsequently upholding a fiscal system favored by the company, what else could possibly stand in the way?
Over the past year, though, instead of sanctioning development, Repsol continued its exploration program. The company conducted a large 3-D seismic survey over the region and permitted three new wells among a cluster of nine previous wells and sidetracks.
That this program is the most geographically concentrated Repsol has conducted to date in Alaska suggests the company is narrowing its focus as it decides how best to develop the region. Added to that are recent comments from Chief Executive Officer Josu Jon Imaz, who told analysts, during a March 2015 earning call, that there was “a high probability” of Repsol making a final decision and drafting a development plan in early 2016. But, he warned, any decision depended on the results of the current drilling season.
Toward the end of March, Repsol applied to form the Pikka unit over 31 state and Arctic Slope Regional Corp. leases covering some 63,304 acres in the Colville River Delta and the shallow waters of Harrison Bay. In an initial plan of exploration, the company said unitization would allow for “the orderly development of four discovered reservoirs.”
Through its first three seasons, Repsol spent approximately $650 million drilling nine wells and conducting two 3-D seismic surveys, according to the company. The three-well program and associated seismic planned for this winter were estimated at $240 million.
In November 2014, Ed Kerr, who is vice president of the Repsol partner Armstrong Oil & Gas said, “In 10 or 15 years people will talk about Repsol the same way they talk about BP and ConocoPhillips today, in terms of … contributing to Alaska’s economy.”
Sniffing around
After the state owned Repsol was privatized in the 1980s and acquired the Argentinean company YPF in 1999, it became one of the largest oil companies in the world.
The company quickly expanded, particularly throughout Latin America, until it maintained upstream, midstream and downstream assets in more than 50 countries.
Over the next decade, though, Repsol shifted its focus. The company increasingly looked for opportunities to pursue oil development in developed economies, which is why the company partnered with Shell and Eni on a block of federal leases in the Beaufort Sea in 2007 and bid $15.6 million on 104 tracts - including $14.4 million in high bids on 93 tracts - in the record-breaking federal lease sale in the Chukchi Sea in early 2008.
A combination of regulatory uncertainty and legal challenges has prevented either of those offshore programs from coming to fruition. The company later claimed to have turned down other opportunities in Alaska due to an “uncompetitive tax structure.”
Some opportunities are too interesting to pass up, though. In March 2011, with the same tax structure in place, Repsol acquired a 70 percent working interest in North Slope leases held by the Armstrong Oil & Gas subsidiary 70 & 148 LLC and its fellow Denver-based independent GMT Exploration LLC. The joint venture covered 494,211 acres in the White Hills region south of the Kuparuk River unit and near the Oooguruk unit.
The $768 million deal earmarked some $750 million for exploration, according to Petroleum News sources, suggesting that all three parties were eager to get to work.
Four seasons
The exploration program recently completed its fourth season.
For its first season, in early 2012, Repsol’s ambitions outpaced its activities. The company wanted to drill five wells, permitted four to accommodate local concerns and ultimately completed only two because a blowout delayed operations for weeks. The two were the Qugruk No. 4 well in the Qugruk unit, north of the Colville River unit, and the Kachemach No. 1 well, southeast of the Meltwater satellite of the Kuparuk River unit.
For its second season, in early 2013, Repsol again attempted its original ambitions. The company planned a three-well program, which included the Qugruk No. 1 well proposed the year earlier, the Qugruk No. 6 well near the site of the blowout and the Qugruk No. 3 well. The first two wells were near the coast. The third was some 10 miles inland, to the south. All three wells found hydrocarbons. Repsol performed drill stem tests on Qugruk No. 1 and Qugruk No. 6 and performed some early geotechnical work needed for development.
For its third season, in early 2014, Repsol appraised those discoveries with a two-well program. The company drilled the Qugruk No. 5 well and Qugruk No. 5A sidetrack and the Qugruk No. 7 well about halfway between Qugruk No. 1 and Qugruk No. 3. (The company also drilled the Tuttu No. 1 well on a lease just south of the Prudhoe Bay unit.)
The Qugruk wells “finished with positive results,” Chief Financial Officer Miguel Martinez said in May 2014. “We are working toward defining the most economical way to develop the area,” he said, adding that it was too soon to provide further details.
As he spoke, Repsol was completing a major 3-D seismic program. In its 2013-14 plan of exploration, the company told the state it planned to collect 140 square miles of 3-D seismic across its onshore holdings, with the potential to add an offshore survey. In reality, the company ended up collecting 208.4 square miles across its coastal holdings.
In an August 2014 letter, Repsol told the state it was working to “fast track” its analysis of the seismic information to identify the best location for an appraisal of Qugruk No. 4.
Toward the end of 2014, the company began permitting five locations for a three-well exploration program, saying it wanted flexibility as it evaluated previous well results.
The proposed Qugruk No. 101 and Qugruk No. 9 wells were nestled between Qugruk No. 1 and Qugruk No. 6 drilled in early 2013 and Qugruk No. 5 and Qugruk No. 7 drilled in early 2014. The other three locations are clustered around previous exploration. The proposed Qugruk No. 301 well was nearly identical to Qugruk No. 3 drilled in early 2013. The proposed Qugruk No. 8 and Qugruk No. 801 wells were roughly one mile and five miles to the south, respectively, into as-yet-unexplored sections of the leasehold.
Ultimately, Repsol selected Qugruk No. 8, Qugruk No. 9 and Qugruk No. 301 and proposed micro-seismic fracture mapping on the Qugruk No. 301 and Qugruk No. 8.
The process uses the vibrations that occur during drilling operations to conduct seismic operations. “This micro-seismic fracture mapping will allow Repsol to understand the azimuth orientation of the maximum principal stress within the productive reservoir,” the company told state officials in an October 2014 plan of operations. “This azimuth orientation will ultimately dictate the trajectory of the horizontal laterals planned for production wells to optimize reservoir production over the life of the reservoir.”
Qugruk, Tapqaq, Pikka
Alongside field work, Repsol has been making administrative moves.
In October 2011, the company applied to form the 98,852-acre Qugruk unit over 49 leases in the T-shaped bundle running up the narrow fairway between the Kuparuk River and Colville River units and then spreading along the state waters of the Beaufort Sea.
The state ultimately approved a 12,065-acre unit over six leases but required Repsol to post a $20 million bond to be returned if the company completed the Qugruk No. 4 well by June 30, 2012, and increased rental rates on four leases set to expire in August 2012.
In mid-2013, taking advantage of a recently passed law, Repsol asked the state to extend the primary terms of five un-unitized leases in the Qugruk area by three-to-four years. The state ultimately gave Repsol two additional years on the leases but required the company to drill an additional well, post a $100,000 bond and collect new seismic.
Over 2014, Repsol also toyed with the idea of forming a second unit. Apparently, the company asked the state to form the Tapqaq unit over the segment of its leases containing Qugruk No. 5. The application never reached public notice and was only mentioned in passing as part of unit decisions for other leaseholders in the somewhat crowded region.
Instead, in early 2015, Repsol applied to form the Pikka unit. The proposed plan of exploration called for drilling three wells over the next five years. All three wells mentioned in the application - Qugruk No. 8, Qugruk No. 9 and Qugruk No. 301 - were wells Repsol permitted in January 2015 for the recently completed season.
