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Vol. 16, No. 4 Week of January 23, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Alaska Offshore Special Report: Development expanding in state waters

Over the past five years, while Shell has tried to expand offshore development farther into the Beaufort Sea, several companies have succeeded in developing projects much closer to shore, within the three-mile boundary that defines state-owned waters.

In June 2008, Pioneer Natural Resources started production from the Oooguruk unit, northwest of the Kuparuk River unit. Oooguruk represents the first step in a shift on the North Slope. It’s the first producing field on the North Slope operated by an independent, and because Pioneer chose to process its products at Kuparuk, rather than build separate facilities, it is a model for how facility sharing does and doesn’t work on the North Slope.

Since bringing the unit online, Pioneer has expanded its operations at Oooguruk.

The company is now producing oil from three horizons at Oooguruk — Kuparuk, Nuiqsut and Torok — and believes the unit could hold as much as 150 million barrels of oil, a 40 percent increase over its initial resource estimates.

Pioneer is also expected to soon begin permitting the Nuna project to the south of Oooguruk. An early development plan calls for two new onshore drill sites and a tie-in pad, as well as associated gravel roads and pipelines.

If Pioneer ultimately sanctions the project, Nuna would likely become a formal expansion of the Oooguruk unit.

Nikaitchuq oil eminent

Eni Petroleum, Pioneer’s minority partner at Oooguruk, is expected to bring its own nearshore Beaufort Sea project into development before the end of January.

The Nikaitchuq unit is located just northeast of Oooguruk. Eni is developing the unit through a combination of onshore and offshore production sites and, unlike Pioneer, built its own 40,000 barrel per day production facilities to process its products from the field.

Eni will first develop the deeper Schrader Bluff OA sand and will decide whether to develop the shallower Schrader Bluff N sand and minor oil accumulation in the Triassic Sag River sandstones based on drilling and seismic results. Production will begin from onshore facilities at Oliktok Point and expand to the offshore facilities at Spy Island.

Oooguruk and Nikaitchuq both trace their lineage back to exploration wells drilled by Denver-based Armstrong Oil and Gas during the early years of the last decade.

A pair of coastal projects

While Oooguruk and Nikaitchuq are primarily offshore units with onshore components, there are two other onshore prospects that extend past the shoreline of the North Slope.

A joint venture lead by Brooks Range Development Corp. is currently evaluating the Beechey Point unit, located in the Gwydyr Bay area north of the Prudhoe Bay unit. While Beechey Point is mostly onshore, it includes a chunk of offshore acreage.

Farther east, UltraStar Exploration has drilled one exploration well at its Dewline unit, and is planning another in first quarter 2012.

Dewline, like Beechey Point, is an onshore unit that extends past the coastline. The first well UltraStar drilled at the prospect was a vertical onshore well, but the company is now planning a directional well to tap an offshore target from an onshore drilling pad.

Taxes, credits, incentives

All four of those projects — Oooguruk, Nikaitchuq, Beechey Point and Dewline — have benefitted from a portfolio of state of Alaska drilling incentives expanded in recent years.

The projects, combined, collected far more than $100 million in exploration tax credits.

In addition, Eni decided to sanction Nikaitchuq after the state of Alaska agreed to modify the royalty structure on the leases to temper the risk of falling oil prices in the future.

However, now that Pioneer and Eni are producers, they are also subject to tax increases enacted in recent years. Those taxes could be up for debate this legislative session.

—Eric Lidji

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