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Vol. 12, No. 46 Week of November 18, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

THE EXPLORERS 2007: ConocoPhillips drops 300,000 acres

Major and its independent partners focused on appraising previously announced NPR-A discoveries

Kristen Nelson

Petroleum News

ConocoPhillips Alaska’s exploration program reached into far western NPR-A last winter, 2006-07. In 2007-08 the company plans to drill closer in, with proposed exploration wells — the program had not yet received management approval when The Explorers went to press — focused on appraising discoveries previously announced on the eastern border of the National Petroleum Reserve-Alaska.

The company has alternated in recent winters between exploring close in and going farther out.

ConocoPhillips Alaska President Jim Bowles told the Resource Development Council’s annual conference in November 2006 that 2005-06 exploration was focused close to existing infrastructure at Kuparuk and Alpine.

In 2006-07, he said, a bigger exploration program was planned, including “moving back into NPR-A.”

The company would drill first at Noatak, south of Teshekpuk Lake, and then move far west to drill at Intrepid, south of Barrow. Bowles said Noatak “probably will not be a large reserve potential,” but if successful could be tied back to Kuparuk or Alpine.

Intrepid, more than 200 miles from Alpine, “needs to have a fairly large reserve base behind it” to be developed, Bowles said.

The wells were not successful and Pioneer Natural Resources said in May 2007 when it announced its first quarter earnings that the two NPR-A wells it participated in over the winter were “noncommercial.” The two NPR-A wells Pioneer participated in were Noatak and Intrepid.

Acreage culled

ConocoPhillips and partners Anadarko Petroleum and Pioneer have begun to cull their NPR-A acreage. The companies determined they have done enough drilling and relinquished 300,000 acres because of noncommercial finds and the costs of working so far from infrastructure.

“When you take a look at what led us to drop that (acreage), it ended up really being the high cost of exploration coupled with what we found, that basically told us that it was uneconomic to pursue,” Erec Isaacson told Petroleum News Oct. 1, 2007. Isaacson, ConocoPhillips Alaska’s vice president of land and exploration, said the results of drilling in the winter of 2006-07 — as released by Pioneer — and “the cost increases and the pressures that we have associated with that … led to an acreage relinquishment that we had earlier this year.”

The relinquished tracts cover Noatak, the Kokoda wells drilled to the south of Noatak and the area where ConocoPhillips permitted the Nugget wells, Isaacson said.

The 41 tracts the companies relinquished effective Sept. 1 are along the western and southern edges of a large block of leases the companies hold in northeastern NPR-A running west from state land at the Alpine field to south of Teshekpuk Lake.

The company also relinquished a block of leases to the north on Harrison Bay.

Julia Dougan, associate state director of the U.S. Bureau of Land Management, the NPR-A landlord, told the Resource Development Council Sept. 20, 2007, that about 1.25 million acres have been leased in the northeast NPR-A in 1999 and 2002, “and about 800,000 acres are still under lease.”

Also logistics challenges

The companies started drilling last winter at Noatak and “rolligoned everything over to our Noatak location” from the Kuparuk River field, Isaacson said. Noatak is south of Teshekpuk Lake, some 50 miles into NPR-A.

At Noatak they “built a 7,000-foot Herc runway, ice runway” and flew all of the equipment that would fit into the Hercules aircraft to Barrow, sending the rest overland by rolligon. When they finished at Intrepid, they flew out what they could “and what wouldn’t fit in the Herc went from Barrow back to West Dock via the sea route because we were running out of time on the tundra,” Isaacson said.

“Last season logistically was incredibly challenging,” Isaacson said.

First there was a late start. “We didn’t get approval to actually get … on the snow until Christmas Eve, with the rolligons.” Because of the lack of snow and the late freeze “we weren’t able to chip as much ice as we normally would in order to make the ice pads and the landing strips” at Noatak.

And because of climatic conditions near Barrow it took a long time to build the ice road to Intrepid.

Because of “all those challenging logistics … costs were up considerably and so it ended up being an expensive exploration year last year.”

And then, he said, referring to the release by Pioneer of the well results, the wells were “basically … sub-commercial or dry holes.”

“So it was a big logistical effort without really anything to show from it.”

Although ConocoPhillips did not release exploration costs, they offered a comparison of 2006-07 costs with the prior year, 2005-06.

“Exploration costs increased by at least 17 percent in the past year,” the company’s Alaska spokeswoman, Natalie Knox Lowman, told Petroleum News. She said “the challenging logistics for operating in the remote NPR-A resulted in further underestimation in total costs.”

Closer in this year

Isaacson said budgets for this winter’s exploration have not been approved; that will happen in early December. But “I can tell you what we’re looking at for this coming year,” he said.

ConocoPhillips is looking at drilling a couple of wells in the “Alpine-Greater Moose’s Tooth area — really exploration-appraisal wells.” That drilling would “follow up on what we had discovered in that area.” A flow test for one of the Rendezvous wells is also possible, he said.

No exploration seismic is planned but there is a possibility of development seismic, 4-D type seismic, over proven field areas.

ConocoPhillips doesn’t yet have “partner and management approval, but that’s currently what we’re looking at.”

Isaacson said staging would be done using the ice road to Alpine — that road is built every year to move supplies to Alpine, which is not connected to the North Slope road system.

“And by doing ice roads (rather than the rolligon and Herc transport used last year) it allows you to use existing rigs that we currently have and so you don’t face the high costs, high-cost environment that we encountered (last year).

“Still, it’s not going to be cheap,” he said.

Agencies hearing near Spark

Petroleum News reported earlier in the year that ConocoPhillips officials have mentioned to permitting agencies that one area possible for delineation drilling is near proposed Alpine satellite CD-7 at the Spark discovery in NPR-A. That information is in line with the five-year NPR-A drilling plan the company submitted to the U.S. Bureau of Land Management.

The Spark DD wells (Nos. 9-12) in that plan are in sections 21, 21, 28 and 21, respectively, of township 10 north, range 2 east, Umiat Meridian. All are in the Northeast NPR-A planning area, directly adjacent to the proposed site for CD-7, which has been evaluated as a development node with permanent road access and a pipeline to Alpine. Spark is some 15 miles southwest of the Alpine oil field.

If the Spark and nearby Lookout (CD-6) discoveries are developed, as little as two miles of pipeline would be needed to connect the Spark DD sites, the agency said.

The Spark No. 1A discovery well tested 1,550 barrels per day of liquid hydrocarbons and 26.5 million cubic feet per day of gas. Spark was one of the discoveries announced in May 2001 by ConocoPhillips Alaska predecessor Phillips Alaska and Anadarko Petroleum. Other successful wells included the Spark 1, Moose’s Tooth C, Lookout 1 and Rendezvous A and 2. All encountered oil or gas and condensate in the Alpine producing horizon.

Doyon 19 stays at Alpine

ConocoPhillips has two exploration rigs under contract that could easily be moved to the Spark DD well sites — Doyon Rig 141 at Kuparuk and Doyon Rig 19, drilling at Alpine satellite CD-4.

Isaacson said that “if we were going to be doing something off of ice” the company would probably use Doyon Rig 141, “the rig that we’ve used for exploration in the past.”

Lowman said Doyon 19 “is the rig that stays at Alpine.”

She said the rig is “at Nanuq right now and then when we build the ice road it will move up to Fiord to continue development drilling there.” Fiord is a roadless satellite development within the Colville River Unit — the Alpine field — where drilling occurs only in the winter and the rig is moved in by ice road. Nanuq, the other Alpine satellite, is attached to the main Alpine facilities by gravel road.

Alpine, which ConocoPhillips operates, is not connected to the North Slope road system. In addition to Alpine, ConocoPhillips operates the Kuparuk River field on the North Slope.

Qannik facilities

The ice road to Alpine will be used to bring out equipment for the CD-2 pad extension for Qannik. Lowman said there are no facilities on the pad extension yet because the gravel is setting up.

The Qannik accumulation, which overlies the main Alpine accumulation, was tested for 19 days in June 2006. When ConocoPhillips announced the discovery in July 2006 the company said average production was 1,200 barrels per day of 30-degree API gravity oil from a 25-foot sandstone at 4,000 feet subsea. The Alpine accumulation, at 40 degrees API gravity, is a lighter oil.

ConocoPhillips applied to the U.S. Army Corps of Engineers in 2006 to expand the CD-2 pad at Alpine for development of Qannik and to allow for additional storage for Alpine CD projects. The expansion would make room for 18 Qannik wells.

The Corps said gravel placement would be done in the winter of 2006-07, followed by facility construction and installation the following year with development drilling beginning in the spring of 2008 and production startup in the summer of 2008.

Isaacson said when the discovery was announced in July 2006 that the company had basically been drilling through Qannik to reach the Alpine accumulation, which is at about 7,000 feet subsea. They had seen the Qannik accumulation on logs, he said, and used exploration dollars to put in a well to test it.

3-D shot at Beluga

In Southcentral Alaska, ConocoPhillips operates the Beluga gas field on the west side of Cook Inlet and the North Cook Inlet gas field, which is produced from the Tyonek platform in the inlet.

Isaacson said 3-D was shot over the Beluga field, basically development 3-D. “You always have the possibility that something of an exploration nature might fall out of that, because of the better data that you get associated with 3-D,” so the data, which is being processed, will be evaluated for that.

Petroleum News editor’s note: ConocoPhillips Alaska employs 1,100 people in the state, has a majority interest in 1.7 million gross acres in NPR-A, and nearly 2.6 million gross undeveloped acres in total outside of producing fields.

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A word from ConocoPhillips Alaska to state, feds

When asked by Petroleum News for the key things that the State of Alaska and/or the U.S. government can do to attract more oil and gas company investment to Alaska, ConocoPhillips Alaska submitted the following comments:

Aside from a stable tax regime, access to resources is one of the top issues facing industry today. A key element of resource access is a fair and reasonable regulatory environment with timely and predictable permitting. Obtaining state permits is fairly straightforward, but the federal permitting outlook in Alaska, particularly the North Slope and adjacent Arctic Ocean, is unfortunately challenged.

Executive Order 13212

With the goal of attracting more oil and gas company investment to Alaska, federal agencies are supposed to follow President Bush’s May 22, 2001, Executive Order 13212 — Actions to Expedite Energy Projects. This Order directed federal agencies to expedite review of permits or take actions to accelerate the completion of projects, while maintaining safety, public health, and environmental protections. Furthermore, the Order directed agencies to establish an interagency task force to monitor and assist in their efforts to expedite their review of permits. This task force was also to monitor and assist agencies in setting up appropriate mechanisms to coordinate Federal, State, tribal, and local permitting in geographic areas where increased permitting activity is expected.

After two concurrent seasons of offshore seismic work in the Arctic, the National Marine Fisheries Service, representing the U.S. Department of Commerce, exceeded regulatory defined deadlines in issuing incidental harassment authorizations for marine mammals. Furthermore NMFS deferred significant federal decision-making authority to non-agency third parties in establishing unscientifically based permit conditions, including severe restrictions on timing of activity. With the Department of Commerce’s goal being to promote commerce, it appears there would be more alignment on that goal with the NMFS.

Onshore, federal permitting inefficiencies exist between the federal National Environmental Policy Act process and the U.S. Army Corps of Engineers permitting process. In the case of the ConocoPhillips Alpine Satellites EIS, the Bureau of Land Management worked collaboratively and in close coordination with the State of Alaska, the U.S. Environmental Protection Agency, the U.S. Fish and Wildlife Service and the Corps of Engineers in completing this 19-month, $14 million effort. Two satellites, CD3 and CD4, were permitted concurrently with the EIS effort. These satellites are on-line and producing today. It was assumed alternatives analyzed and evaluated by BLM and the cooperating agencies during the EIS would be adequate to permit the next satellite, CD-5. However, the Corps of Engineers’ permit process duplicates some of the NEPA process elements previously completed. This has resulted in 30 months of additional analysis and added significant cost, and to date there is still no permit decision.

As an example, we believe BLM has struck a reasonable balance in management of the National Petroleum Reserve-Alaska, and served the interests of many stakeholders. We would like to see similar balance from other resource and stewardship agencies.

The cooperation and due diligence of federal agencies is a critical factor in the development of oil and gas resources on the North Slope. Companies planning to explore need to be able to rely on a stable, consistent and due-process regulatory system in order to make sound investment decisions.