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Vol. 16, No. 2 Week of January 09, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Pioneer leaving Cosmo

Company is already marketing the southern Kenai oil and natural gas prospect

Eric Lidji

For Petroleum News

Pioneer Natural Resources will not pursue development of its Cosmopolitan unit, the Texas-based independent announced on Jan. 4. The decision came after the results from recent flow tests led Pioneer to reduce its estimates for the size of the offshore field, located in the waters off the southern Kenai Peninsula in the Cook Inlet region of Alaska.

When Pioneer originally acquired an interest in Cosmopolitan, the “previous owner had an oil discovery for which economic viability was not determined,” Pioneer said in a press release. After completing and interpreting a 3-D seismic shoot, Pioneer drilled a well to appraise the resource potential at Cosmopolitan, and found the results “encouraging.” Pioneer subsequently completed a workover and fracture stimulation of the well, but “subsequent flow test results and engineering studies indicated that the resource potential was not as large as originally estimated,” the company said.

Because of Cosmopolitan’s “limited impact to the Company’s future Alaskan and overall growth profile,” Pioneer decided in the fourth quarter of 2010 not to fund additional appraisal drilling. “As a result, a noncash exploration and abandonment charge of approximately $101 million will be recognized in the fourth quarter of 2010 associated with the decision to abandon the Cosmopolitan project,” the company said.

1960s exploration work

The onshore-offshore unit in the southern Kenai Peninsula dates back to exploration work from the late 1960s and the early 2000s. Pioneer acquired an interest in 2005 and conducted its own exploration work in 2007, but placed the project on hold in 2008 when commodity prices dropped. As recently as April 2010, Pioneer laid out a potential development plan for Cosmopolitan, but now it plans to put the prospect up for sale.

“In conjunction with our decision not to pursue development of the Cosmopolitan unit, we are actively marketing the property,” spokesman Tadd Owens said in an e-mail.

In its most recent unit agreement, Pioneer committed to drill at Cosmopolitan by Jan. 31.

The 23,516-acre Cosmopolitan unit covers in eight state leases and two federal leases in Cook Inlet offshore the west bank of the Kenai Peninsula, near Anchor Point.

After arriving in Alaska in 2000, Pioneer acquired known but undeveloped prospects as well as significant exploration acreage. In the decade since, though, the company has slowly consolidated its holdings in the state, first by relinquishing its exploration acreage and now by leaving Cosmopolitan. Pioneer’s holdings in Alaska are now limited to its nearshore Beaufort Sea Oooguruk unit and surrounding acreage, where it continues to expand operations into leases that it holds with Oooguruk partner Eni Petroleum, including the proposed Nuna Development Project south and west of the unit.

Pioneer sold Cosmo oil

Pennzoil discovered what became Cosmopolitan when it drilled the Starichkof State No. 1 and the Starichkof State Unit No. 1 wells in 1967, encountering oil in the Starichkof interval and water in the Hemlock interval, results that didn’t prompt development.

ConocoPhillips formed the Cosmopolitan unit in 2001. The next year, it drilled the Hansen well up dip of the Starichkof State No. 1, encountering oil in both the Starichkof and Hemlock intervals. ConocoPhillips drilled the Hansen 1A sidetrack in 2003 across both the Starichkof and Hemlock sands, and a 50-day flow test averaged 550 barrels per day of 24-27 API gravity crude. It completed a 3-D seismic survey over the unit in 2005.

That year, Pioneer took over the unit. In 2007, it drilled Hansel 1A-L1, a lateral from the Hansen 1A wellbore, targeting the upper Starichkof interval. In early 2010, Pioneer re-entered and flow tested the lateral. In a plan of operations submitted to the Alaska Department of Natural Resources in early 2010, Pioneer wrote that the Cosmopolitan reservoir “is lower quality than most other producing oil fields of the Upper Cook Inlet.”

That didn’t stop Pioneer from trying to develop the prospect, though.

The company took on a unique pilot project at Cosmopolitan in recent years, trucking crude oil from flow tests up the Sterling Highway to the Tesoro refinery in Nikiski.

“We sold our test production from both the Hansen 1AL1 sidetrack in 2007 and the subsequent fracture-stimulated completion in 2009 to Tesoro,” Owens said.

In its plan of operations filed last year, Pioneer hypothesized that it could produce up to 8,000 barrels per day from Cosmopolitan, or 40 tanker truckloads, sometime after 2014.

According to production figures from the Alaska Oil and Gas Conservation Commission, the Hansen field produced 33,504 barrels of oil and 119,006 thousand cubic feet of gas.

Uncertainty in the S. Kenai

By abandoning Cosmopolitan, Pioneer is adding another twist to the emerging story of the southern Kenai Peninsula. For years, efforts to develop the region kept getting stalled, despite several known accumulations, because no one discovery justified development.

Now, Armstrong Cook Inlet and a team of partners appear to be just weeks away from bringing the North Fork unit online. The unit sits among several potential prospects and many industry watchers hoped it might lead to a domino of regional development.

While that could still happen in the coming years, the development picture remains cloudy for the time being. Pioneer is marketing Cosmopolitan and Chevron is marketing its entire Cook Inlet portfolio, including the Nikolaevsk unit northeast of North Fork.

However, some bright spots remain. Apache, the large Houston-based independent, picked up some acreage in the southern Kenai Peninsula when it arrived in Alaska last year. And Buccaneer Alaska, the local subsidiary of an Australian independent, is looking to explore its onshore West Eagle prospect east of Nikolaevsk this year or next.

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