Apache Corp. started its Alaska tenure at full speed but has since decelerated.
The Houston-based independent came to Alaska in mid-2010 after months of speculation about its eminent arrival, quickly proposed a major campaign to revitalize oil exploration activities throughout the Cook Inlet basin and just as quickly slowed those efforts as a response to regulatory delays and weaker-than-expected results from exploration drilling.
Three incidents from 2014 suggest the company remains interested in Cook Inlet.
In February, Apache resumed a 3-D seismic program in the Kenai National Wildlife Refuge. In August, the company applied for federal approval of a five-year program to conduct offshore seismic activities in the upper Cook Inlet through February 2020. Then, in December, the company began permitting construction for three gravel pads for exploration drilling and associated access roads on Native land within the refuge.
“Apache is applying for the necessary permits needed to allow for exploration of oil and gas,” Apache Alaska spokeswoman Lisa Parker told Petroleum News by email at the time. “While no decisions have been made it is critical to have all the permits in place.”
Whether such cautious optimism can survive lower oil prices remains to be seen.
In January 2015, Apache replaced its long time Chief Executive Officer G. Steven Ferris, who had been a vocal supporter of the opportunities his company had been pursuing in Alaska, and its Chief Financial Officer Alfonso Leon. The new CEO is John Christmann, who the company had recently hired to oversee development of its North American assets, particularly unconventional opportunities. The new CFO is Stephen Riney, who had previously held a similar position for BP’s exploration and production segment.
The shake-up came after Apache, at the urging of investors, sold off some $6 billion in assets over 2014 to narrow its focus to unconventional plays in the United States and Canada. Some felt that Apache was reluctant to make the change, believing that its international holdings generated cash flow that supported North American investments.
In November 2014, in response to declining oil prices, Apache announced a $4 billion budget for its onshore operations in North American in 2015, down from $5.4 billion for the segment in 2014. Some analysts believed the company would spend more than its budget. Those predications, though, came when oil prices were above $70 per barrel. An Apache executive told the Houston Chronicle that the company would be “comfortable … even all the way down to $70.” By January, prices had fallen below $50 per barrel.
Apache made no explicit mention of Alaska in a November 2014 event on North American activities, focusing on Canada, Oklahoma, Texas and the Gulf Coast. But executives referenced three unnamed “undercover plays” budgeted for exploration work in 2015. Alaska remained absent from company updates in February and March 2015.
Rumors first
When Apache representatives attended a state-sponsored conference in Anchorage and formed an Alaska subsidiary in early 2010, a wave of optimism crested in the oil patch.
That’s not just because Apache is one of the largest oil companies in America.
It’s because the company had spent some $10 billion over the previous decade acquiring prospects around the world with an eye toward extending the life of mature oil fields.
With Alaska in its fifth decade of oil development and its third decade of declining oil production, the idea of a company focused on rejuvenating old fields captured the imagination. At several points in 2010, major news outlets reported that BP was in talks to sell the Prudhoe Bay field to Apache as part of a larger divestment campaign.
That didn’t happen.
Later in the year, rumor had it that Apache wanted to buy the Cook Inlet assets of Chevron. Ultimately, Chevron sold those assets to the independent company Hilcorp.
Finally, in late July 2010, Apache arrived. The company acquired 196,524 acres from Samuel H. Cade, Daniel K. Donkel and three other independent investors. The acreage was scattered across the Cook Inlet basin, and included onshore and offshore tracts.
Over the nearly five years since, Apache has expanded and refined its holdings in Alaska through lease sales, private deals, relinquishments and expirations. At its peak, Apache claimed to hold some 800,000 acres across the basin. As of January 2015, the company was leasing some 419,493 acres from the state of Alaska and more from private owners.
‘An oil museum’
Apache came to Alaska to look for oil.
As it had done in other mature basins such as the western desert of Egypt and the Forties field in the North Sea, the company intended to begin its tenure in Alaska with seismic.
The company launched a small, preliminary 2-D seismic survey in early 2011 covering onshore, offshore and “transition zone” targets. To gauge the effectiveness of wireless nodal recorder technology in the Cook Inlet basin, the company ran the newer technology alongside a conventional seismic recorder. The results intrigued the company. “It’s an exploration play but the guys have wowed me enough for me to believe that it’s a real opportunity,” then-CEO Steve Farris said during a conference call in August 2011.
A few months later, Apache Senior Commercial Advisor Paul Abokhair told state lawmakers that the company was “on a 25- to 30-year plan for the Cook Inlet.”
By that point, Apache had commissioned an ambitious three-year 3-D seismic survey.
The wide-ranging program was supposed to run north to the Susitna Flats and south to Anchor Point. The three-year timetable and the wireless technology would have allowed Apache to work year round: onshore from September to April, offshore from April to November and in transition zones from September to December and March to May.
After a few months, the company was impressed.
“When you go up there, it’s kind of like going back into time. It’s like an oil museum, is kind of how I’d describe it,” Apache Vice President for Exploration and New Ventures John Bedingfield told analysts in June 2012. “It’s interesting, but things have just been frozen for 40-plus years.” To make the claim even more intriguing, Bedingfield added that Apache believed there was as much oil still to be discovered in the basin as has already been produced in the 55 years since the first discovery well in the region.
The first 130 square miles of seismic identified eight new leads, according to Bedingfield, suggesting as many as 650 potential leads spread across the leasehold.
Delays and challenges
A regulatory challenge to the program in early 2012 slowed those efforts.
As Apache prepared to move the survey into more fragile transition zones and offshore regions, a coalition of environmental groups challenged a favorable National Marine Fisheries Service opinion about the potential impacts of the program on beluga whale or Steller sea lion populations in Cook Inlet. By the time a May 2013 court order upheld a portion of the appeal, the authorization had expired. The parties agreed to close the case.
A delay over a different authorization for a seismic survey in the Kenai National Wildlife Refuge forced Apache to suspend its program in September 2012. Shutting down the $50 million operation cost Apache $10 million and delayed the overall program by at least a year, Apache Alaska General Manager John Hendrix said in February 2013. Even after Apache got the necessary approvals to continue, the company kept the Alaska seismic survey on hold while it pursued more immediately profitable projects in its portfolio.
Given the expansiveness of its seismic program, Apache decided to drill exploration wells over regions it had surveyed as it continued collecting information for other areas.
In April 2012, the company announced a two-well program - the Aspen well on the west side in the summer and the Captain Boomer well on the east side that fall or winter.
Taking a long view, Apache planned to drill the wells as deep as 16,000 feet, which would have allowed the company to test intervals beneath the Tertiary strata of the basin.
“We don’t want anybody coming back behind us and saying ‘look what I’ve got,’” Hendrix told Petroleum News in June 2012. “You’re down there. You’re drilling. You might as well go the extra mile, or a thousand feet, or whatever it is.”
Ultimately, Apache scaled back its efforts, planning a one-well program on the west side of Cook Inlet, where its seismic activities had so far been focused. In November 2012, Apache drilled the Kaldachabuna No. 2 well on Cook Inlet Region Inc. land near Tyonek.
Simasko Production Co. had drilled the 12,890-foot Simpco Kaldachabuna No. 1 well nearby in 1980. Despite finding oil and gas in the Tyonek formation, Simasko abandoned the well because of “low permeabilities and low structural position” and large quantities of water in the formation. Apache wondered whether a generation of advances in well stimulation techniques would have more success producing oil from the formation.
Kaldachabuna No. 2 passed through more than 100 coal seams, including many thicker than 10 feet. The drill bit became stuck several times. Apache suspended the well in April 2013 at 11,389 feet, according to Alaska Oil and Gas Conservation Commission records.
Apache declined to offer any well results but later slowed its exploration plans. “Frankly, we were disappointed in the well results that we had there,” Farris told analysts during an August 2013 conference call. “We drilled the well and actually got too close to a fault, so we really didn’t evaluate that well.” The company would continue seismic efforts while waiting on future drilling. “I am personally still very positive about the Cook Inlet,” he said. “Obviously we’re directing cash to different things right now. So, we’ve slowed down that activity but in terms of its prospectivity, I still think it has good value.”
Renewed interest
The promise of seismic came true.
After getting a U.S. Fish and Wildlife Service special use permit in July 2013, Apache started its onshore survey in the Kenai National Wildlife Refuge in February 2014.
And in March, after getting new approval from the National Marine Fisheries Service, the company resumed its offshore seismic survey. But in May 2014, CIRI Senior Vice President of Land and Development told the U.S. House Committee on Natural Resources that a lack of coordination between federal permitting agencies had caused Apache to scale down a planned major 3-D seismic program in the Cook Inlet basin, to a smaller, discontinuous 2-D program. Apache declined to comment on the announcement.
Apache alleviated some of the uncertainty around its Cook Inlet program through two filings in the second half of 2014. In August, the company applied for National Marine Fisheries Service authorization for a five-year offshore seismic program running from March 2015 to February 2020. The request covered 1,863 square miles of upper Cook Inlet, from south of Kalgin Island to an area west of the northern Kenai Peninsula. The authorization was released for public comment in March 2015. In December, the company applied for a U.S. Army Corps of Engineers permit to build three gravel pads and associated access roads within the Kenai National Wildlife Refuge.
In both cases, the permits would merely give the company options as it budgets exploration activities over the next five years. The company has yet to sanction activities.
