Faced with a looming expiration date on dozens of federal leases, ConocoPhillips worked out a deal with the Bureau of Land Management to form a new exploration unit called Bear Tooth and expand an existing unit in the National Petroleum Reserve-Alaska.
Rolling an individual lease into a unit has the effect of extending its original 10-year term, thus allowing ConocoPhillips to hang onto acreage it otherwise would have lost at the end of August.
In exchange for granting the company’s unit requests, the BLM extracted promises from ConocoPhillips to conduct more drilling and other exploratory work within the unit areas.
It’s a good deal all around, said Greg Noble, acting chief of BLM Alaska’s energy and minerals branch.
“Units are supposed to be beneficial to both parties,” he said. “The lessees get more time to explore their leases and the government gets a commitment that further exploration will occur.”
While many leases were unitized, ConocoPhillips and partners Anadarko and Pioneer Natural Resources let go 43 other leases covering about 500,000 gross acres, company spokeswoman Natalie Lowman told Petroleum News on Sept. 2.
The surrendered leases didn’t fit the company’s strategic plans based on their potential for development, she said. What’s more, many were in the very remote northwest section of the NPR-A, far to the west of existing production infrastructure at the Alpine field.
“We’re really focused on Chukchi exploration right now,” Lowman added. ConocoPhillips had more than $506 million in winning bids in a Chukchi Sea offshore lease sale in February 2008.
New Bear Tooth unitThe BLM’s Noble signed two Aug. 25 letters creating a new Bear Tooth unit and expanding the existing Greater Mooses Tooth unit. Both are in the northeast corner of the NPR-A, west of the Colville River and the Inupiat Eskimo village of Nuiqsut.
ConocoPhillips applied for the Bear Tooth unit on Aug. 19. It takes in all or part of 23 leases covering 105,655 acres, all federal land.
Noble’s letter says natural gas has been discovered in the unit area, but no oil. It identifies the Cretaceous sandstone as the primary target and the upper Jurassic sandstone as the secondary target.
Under the unit agreement, ConocoPhillips must drill a well to the primary target in what’s designated as Unit Area A. The company also must test the Scout 1 well to the secondary target in lieu of drilling a well for Unit Area B. The suspended Scout 1 well, which sits on the northern boundary of the Greater Mooses Tooth unit, was spud in March 2004.
The agreement gives ConocoPhillips a June 1, 2012, deadline to carry out the drilling and testing.
Greater Mooses Tooth expandedNoble also granted an expansion of the Greater Mooses Tooth unit, originally formed in January 2008.
ConocoPhillips asked for the expansion on July 29, Noble’s approval letter says.
The expansion adds four more leases to the unit, increasing its size from 147,456 acres to 164,014 acres. All the acreage is federal land, but 40,238 acres or about a quarter of the unit has been selected for future subsurface conveyance to Arctic Slope Regional Corp., the letter says.
In exchange for the expansion, ConocoPhillips must spud an exploration well by the third quarter of 2015. The well will target the upper Jurassic sandstone and “will be located at the Unit Operator’s choice within the expansion area,” Noble’s letter says.
Failure to spud the well by the deadline will invalidate the unit expansion, the letter says.
NPR-A production comingConocoPhillips has been the most active driller in the NPR-A, an Indiana-sized tract of North Slope land former President Warren G. Harding set aside in 1923 for its oil and gas potential.
Most of the exploration, and discoveries, have been confined to the reserve’s northeast corner, closest to the existing pipelines, roads and processing plants of the central North Slope oil fields.
Still, NPR-A is considered a frontier where development dictates an accumulation be either very large or reasonably close to infrastructure.
The NPR-A’s latest wave of leasing began in 1999. Since then, ConocoPhillips has surrendered leases on at least two occasions. The company gave up 43 leases in 2007 and 41 leases last year, Lowman said.
But the company is marching toward first production from the NPR-A in late 2012 with its CD-5 Alpine West satellite development, which is in the permitting phase. The production pad would sit roughly midway between the Alpine field to the east and the Greater Mooses Tooth unit to the west.