The state is considering the fate of the Beechey Point unit.
The Alaska Department of Natural Resources started termination proceedings for the North Slope unit last September, although it agreed to reconsider after operator Brooks Range Petroleum Corp. made a case for maintaining the unit in the Gwydyr Bay region.
Then-Commissioner of Natural Resources Joe Balash initiated the termination proceedings in September 2014, saying the Alaska-based company had failed to meet certain work commitments in its initial five-year plan of development and failed to meet any of the conditions for justifying an extension. In addition to obvious conditions like sustained oil or gas production or ongoing exploration activities, those conditions include having a well certified as capable of producing hydrocarbons in commercial quantities.
With no such certified well at the unit, Balash believed termination was justified.
The company disagreed. In a late September 2014 letter, Vice President for Exploration Larry Vendl named two certified wells within the unit boundaries. He asked for a chance to negotiate a plan of development that would allow the company to continue exploration and development activities. The company could start as early as 2015, Vendl wrote.
Wells on leases
The leases included in the Beechey Point unit undeniably include two wells certified as capable of producing hydrocarbons in commercial quantities: Gwydyr Bay South No. 1 from 1974 and North Shore No. 1 from 2008. Both wells, though, were drilled before the state approved the Beechey Point unit in mid-2009. To the state, that made them irrelevant for extending the terms of the unit. To the company, it made no difference.
Of particular interest is North Shore No. 1, which was the first well Brooks Range Petroleum drilled in Alaska. The state certified the well in July 2008, approved the Beechey Point unit in August 2009 and asked the company to apply for a recertification by August 2010. To Brooks Range Petroleum, this “redetermination requirement” represented a changing standard. No other operator had been asked to perform a similar task, according to the company, which asked the state, in July 2010, to reconsider.
The state never responded, according to the company. The debate may be more than merely an administrative debate, though. In his September 2014 letter, Balash wrote, “It is my understanding that the well is physically incapable of producing hydrocarbons.”
New plan wanted
Brooks Range Petroleum now wants to negotiate a new plan of development, citing its commitment to the project thus far. The company said it had spent more than $85.5 million exploring the region to date and had begun permitting for a proposed North Shore Development Project. The company also applied to form an initial participating area. The state had yet to rule on the application when the termination proceedings began.
What the company failed to do was drill all the exploration wells required by the unit agreement. The agreement required Brooks Range Petroleum to drill at least one well in two different exploration blocks by December 2010 and December 2012, respectively.
The company only met the first work commitment. The state subsequently extended the deadline for the second commitment until 2014, which the company also missed.
In October 2014, Balash agreed to reconsider the termination. His decision came shortly before the election of Gov. Bill Walker, which prompted a turnover of many cabinet-level positions, including the Department of Natural Resources. The new commissioner, Mike Myers, inherited the matter and had yet to issue a decision by early March.
A decade of work
Although recently sold to a multiparty joint venture, Brooks Range Petroleum Corp. started its life as the operating arm of the Alaska Venture Capital Group, which came to Alaska in 1999 to pursue sizeable oil fields passed over by the major oil companies.
The Gwydyr Bay region north of Prudhoe Bay fit the bill.
The company acquired leases through a 2001 land swap with Phillips Petroleum and arranged an exploration program. The program collapsed under the weight of various logistical problems. Still intrigued, the company acquired the acreage again in 2005.
Brooks Range Petroleum commissioned a two-well exploration program in early 2007.
North Shore targeted Ivishak
The 10,319-foot North Shore No. 1 well targeted an oil accumulation in the Ivishak formation first tested by Mobil Oil with the Gwydyr Bay South No. 1 well in 1974. The well encountered “approximately 70 feet of oil-charged Ivishak sandstone formation.”
The 11,348-foot Sak River No. 1 followed up on a prospect previously included in the BP-operated Sak River unit. The well proved to be a dry hole, although the results were intriguing enough for the joint venture to consider returning to drill a sidetrack.
That winter, the company also commissioned a 130-square-mile 3-D seismic survey, which “identified two small satellite prospects to North Shore No. 1 that can be reached from the North Shore No. 1 drilling pad,” according to a former partner on the project.
Combining small prospects
The results of that initial season started the company along its current path - finding a way to string together several marginally economic prospects into a single, profitable development. An early partner described the strategy as “establishing a threshold” for development. Potential solutions included two production pads or extended reach drilling.
Brooks Range Petroleum re-entered North Shore No. 1 in early 2008 to test the Ivishak and the shallower Sag River formations. The Ivishak flowed at 2,092 barrels of oil per day. A mechanical problem down hole compromised the Sag River test, although the partner estimated that an unencumbered test could have flowed at 1,000 barrels per day.
That summer, the joint venture acquired the nearby Pete’s Wicked prospect from Pioneer Natural Resources Inc. BP discovered the prospect in 1997 and Pioneer acquired it in a 2003 lease sale. The acquisition provided an additional opportunity for bundling several prospects together.
A legal dispute among partners prevented drilling in early 2009. The following winter, Brooks Range Petroleum drilled the Sak River No. 1A sidetrack and the North Shore No. 3 delineation well. The company suspended both wells at the end of the drilling season.
Sak River 1A wet
“Sak River No. 1A was truly an exploration project with a pre-drill risk factor of 1 in 5, unfortunately the well encountered mainly water from the Kuparuk formation,” Brooks Range Petroleum Chief Operating Officer Bart Armfield wrote in a completion report for the season, which was published after a mandatory two-year delay. Although the company had plugged and abandoned the original Sak River No. 1 well, it suspended the sidetrack, which would allow it to be used for providing pressure maintenance for future wells in the Sag River formation. The company said it was considering plans for a second sidetrack, which would aim for an “up-dip target of the Kuparuk,” Armfield wrote.
North Shore No. 3 “identified a common oil/water contact between the Sag and Ivishak formations and presents a reduced reserve base for the North Shore development,” Armfield wrote, adding that the company had now discovered reserves at North Shore No. 1, North Shore No. 3 and Pete’s Wicked, which would guide future activities.
With its attentions increasingly devoted to the Mustang development, just west of the Kuparuk River unit, Brooks Range Petroleum has yet to return to the Beechey Point unit.
The original unit covered some 52,876 acres north of Prudhoe Bay. The unit contained five exploration blocks. In September 2012, the company relinquished some 42,119 acres on the western side of the unit, leaving a seven-lease unit covering some 10,757 acres.
‘Close proximity’
The challenge at Beechey Point remains the same, according to Vendl.
“The potential for successful exploration and development in this area requires the compilation of several prospects with known reservoir reserves in close proximity to one another,” Vendl wrote in his letter. “The smaller prospects need to be a part of a larger program; each independent prospect does not support an economic development model.”
The current strategy involves combining the prospects of various operators in the region, including the East Shore prospect at Beechey Point, the ConocoPhillips-operated Kup Delta lease and the UltraStar Exploration-operated Dewline unit, all of which are located on adjacent leases (see map). At the time of the letter, in September 2014, Brooks Range Petroleum was involved in discussions with both ConocoPhillips and UltraStar, according to Vendl.
Another option, Vendl noted, would be to expand the 3-D seismic survey BP Exploration (Alaska) Inc. is commissioning for the northern end of Prudhoe Bay, including Beechey Point. “We continue to pursue the availability of the contractor to include the (Beechey Point unit) leases so that we can determine the full potential of the Kup Delta and (Beechey Point unit) eastern area, including the Dewline unit,” Vendl wrote in his letter.
