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Vol. 14, No. 37 Week of September 13, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Ready at Umiat

Renaissance says field development will depend on sustained oil prices

Alan Bailey

Petroleum News

The Umiat oil field, adjacent to the Colville River on the eastern side of the National Petroleum Reserve-Alaska, has remained a tantalizing puzzle since the U.S. Navy discovered oil there in 1946 and subsequently abandoned as prohibitively expensive a scheme to pipe oil from the field to Fairbanks.

And despite being known to contain valuable light oil, the field’s remote location, many miles from the Prudhoe Bay oil infrastructure and the trans-Alaska oil pipeline, has continued to preclude development of what could prove to be a useful addition to the inventory of producing fields in northern Alaska.

Perhaps until now, that is.

Executives from oil independent Renaissance Alaska LLC, owner of two federal Bureau of Land Management leases and one state lease over the Umiat reservoir, told Petroleum News Sept. 4 that Renaissance has evaluated the field and is now waiting to see what happens to oil prices before deciding whether to proceed with development drilling. The company has recently renewed the core southerly BLM lease in the field, with the term of the lease now extending through to 2019.

“Umiat oil is light — about 37 API oil — and it’s sweet, sweeter than anything else up on the Slope. We’re excited in terms of the work we’ve done here in the past couple of years to de-risk the project,” said Jim Watt, Renaissance president and CEO.

250 million barrels

Following a 2008 3-D seismic survey by PGS Onshore and a subsequent assessment of field reserves by Ryder Scott Co, Renaissance thinks that the main reservoir horizons in the field hold some 250 million barrels of economically recoverable oil, a figure substantially higher than an old U.S. Geological Survey assessment of 30 million to 100 million recoverable barrels. The USGS assessment assumed the use of vertical wells, rather than horizontal wells, and did not take into account modern secondary and enhanced oil recovery techniques, Watt said.

And independent evaluations of the field reservoir have given Renaissance confidence that modern drilling techniques, such as horizontal drilling, will result in viable oil-well flow rates.

“Given the reservoir characteristics, there’s a high degree of confidence that these wells will perform,” Watt said.

In fact, despite the very shallow nature of the Umiat field, with the deepest oil lying just 1,400 feet below the surface, the pay sands are well consolidated, rather than consisting of well-bore-plugging, loose sand, said Allen Huckabay, Renaissance executive vice president for exploration and development. Geologic studies have indicated that the sands were compacted when buried to depths of 6,000 to 7,000 feet, with subsequent uplift of the rock strata resulting in the current shallow depths, he said.

Several horizons

Huckabay explained that the Umiat field contains oil in several distinct rock horizons, all in the Nanushuk group, within the Brookian sequence, the youngest of the petroleum-bearing rock sequences in northern Alaska — the 7,500-acre Umiat oil field structure consists of a fold within the Brookian of the fold belt that lies along the northern side of the Brooks Range.

Two sandstone horizons, called the upper Grandstand and lower Grandstand, hold the oil reserves assessed for potential development, Huckabay said.

And comprehensive well core data from the wells drilled by the navy has indicated the presence of shales that seal the sand reservoirs, holding in the oil and potentially supporting the maintenance of the reservoir pressure that would be needed when producing the field.

Moreover, shallow sands associated with well-known surface oil seeps at Umiat and lying above the Grandstand horizons, could hold additional potential of 400 million barrels of oil in place. And, because the figure of 250 million barrels of recoverable reserves derives from an estimate of more than 700 million barrels of total oil in place in just the Grandstand horizons, there appears to be a large amount of oil in total at Umiat.

“All told it’s over 1 billion barrels of oil in place,” Huckabay said.

So, given the size of the field and the quality of the oil, why has no one considered developing Umiat until now?

The Umiat acreage was not offered for oil and gas leasing in the initial NPR-A lease sales held in the early 1980s and did not become available until a 1999 lease sale, said Mark Landt, Renaissance executive vice president of land and administration. But the drop of oil prices to around $10 per barrel in 1999 discouraged interest in Umiat at that time, he said.

New opportunity

Then, as oil prices started to climb a few years later, Renaissance saw Umiat as one of several Alaska opportunities.

“This one caught our eye when oil prices started to step up from the $30s into the $40s, and it’s at that point in time that we started to pull together the funding to capture the leasehold,” Watt said.

The company started buying into the Umiat leases in 2004, acquiring acreage from R3 Exploration and Arctic Falcon Exploration, the initial leaseholders. By 2007 Renaissance had pulled together an acreage position over the entire field.

In 2007 Texas-based Rutter and Wilbanks also became involved in the Renaissance Umiat venture, but pulled out of the project towards the end of that year.

And in February 2008 Renaissance deferred an initial plan to drill seven or eight appraisal wells in the Umiat structure, electing instead to “de-risk” field development with a 3-D seismic survey.

Now the company thinks that data from the 12 wells that the navy drilled years ago, together with the new seismic data, delineate the field sufficiently to enable a development decision that would lead the way straight into development drilling.

“At this point in time we’re real comfortable with the data that we have,” Watt said.

“Originally our plan was to drill these appraisal wells … and we now see these … wells would clearly be part of the ultimate development plan,” said Huckabay.

Oil price the key

But confidence in oil prices remaining robust into the future will prove to be the key to Renaissance moving ahead at Umiat.

“Until that (confidence) comes, where you can start making large investments, I think everybody’s probably going to step back and be a little more cautious in terms of how they proceed,” Watt said.

Meantime, Renaissance has started to prepare a business plan for an Umiat development, having commissioned NANA WorleyParsons to estimate the costs of developing field facilities and well pads, and Arctic Slope Regional Corp. subsidiary, Houston Pipeline, to develop estimates for building an oil export pipeline from Umiat to pump station 2 of the trans-Alaska pipeline.

A team in the University of Alaska Fairbanks, funded by a U.S. Department of Energy grant, is further working with Renaissance on the geology, geophysics and reservoir engineering of the Umiat field.

Renaissance is also studying the challenges of producing cold oil — because of the shallow nature of the Umiat reservoir, the oil will be produced at temperatures in the range 28 to 32 F, temperatures that are much lower than those of a more conventional field in northern Alaska. And Renaissance is assessing pumping the oil, cold, down the export pipeline, rather than heating the oil up, Watt said.

“That’s an area of study for us that we’re going to be looking at here over the next few months,” Watt said.

Multiple developments

A key issue that would impact the economics of an Umiat development is the question of what other companies are doing in the Umiat region. For example, Anadarko Petroleum is exploring for natural gas at a number of nearby locations, including the neighboring Gubik gas field — the use of a single pipeline right of way for more than one project, together with the sharing of activities such as conducting baseline environmental studies during project permitting, could significantly reduce project costs, Landt said.

Renaissance also hopes that the state will move ahead with its concept of building a gravel road from the Dalton Highway to Umiat, a road project that the company believes would have a major impact on the economics of the Umiat development by providing year-round surface access to the field location. And, by co-locating the road with an Umiat pipeline corridor, the road would speed up pipeline development. Renaissance thinks that the existence of a road would reduce the pipeline construction time from two years to one year, thus bringing oil to market earlier than would otherwise have been possible, Landt said.

Moreover, by reducing the need for ice-road construction by multiple companies for winter exploration and development, a state road would significantly reduce the state’s tax credit liabilities, Landt said.

And a road and pipeline corridor to Umiat, supporting multiple developments in that area, could form the start of a bridgehead into eastern NPR-A, opening the way to future access to oil and gas resources in the reserve, in a somewhat analogous manner to ConocoPhillips’ expansion of the oil and gas infrastructure to the west of the Colville River delta, into northeastern NPR-A, Landt said.

“The state could take a lead here in terms of access. That way there could be a corridor for development,” he said.

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