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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: Small independents in high gear

Five small E&P gas companies plan to drill exploration wells on Alaska’s North Slope winter 2007-08

Kay Cashman

Petroleum News

Five small independent oil and gas companies expect to drill exploration wells on Alaska’s North Slope in the winter exploration season of 2007-08. In the past, the highest number of small independents drilling wells in any single season was one.

The five companies are Brooks Range Petroleum Corp. Group, UltraStar Exploration, Savant Alaska, Alaskan Crude and Renaissance Umiat.

Four of the companies will operate their own wells; one, UltraStar, will have a geologist on the well who calls the shots, but BP will actually do the drilling from a Prudhoe Bay unit pad with a Nabors rig it already has under contract.

Of the five, only three independents have drilled on the North Slope in the past — UltraStar's sister company Winstar drilled an Oliktok well in 2003, BRPC Group drilled two wells on two prospects in the winter of 2005-06, and a predecessor to Alaskan Crude drilled the well it is re-entering this coming winter.

So, technically, four companies are drilling wells, and one is doing a re-entry.

But if Alaskan Crude is successful it might result in the development of a new oil and/or gas field on the North Slope.

BRPC Group, 3-4 wells

BRPC Group was organized by Alaska Venture Capital Group in 2006, but two Kansas oilmen, Bo Darrah and Bart Armfield, formed AVCG in 1999 to explore “leftovers” on the North Slope.

AVCG formed an operating arm, Brooks Range Petroleum Corp., and brought former ARCO Alaska President Ken Thompson on board to bring in partners to help finance exploration and development on the Slope.

BRPC Group consists of AVCG, its operating subsidiary Brooks Range Petroleum and three well-funded partners — TG World Energy Inc., Nabors subsidiary Ramshorn Investments Inc. and Bow Valley Alaska Corp.

Thompson said in October 2007 that BRPC Group is hoping to drill as many as four wells this winter, 2007-08, on three different North Slope prospects. But first it will go back in to complete and test its North Shore 2006-07 exploration well, one of two drilled in the Gwydyr Bay area northwest of Prudhoe Bay. Sak River No. 1 was a dry hole, but BRPC Group said the other well, North Shore No. 1, looked like an oil strike. “We plan to complete and test this well this winter,” Thompson said.

The partners also ran a 130-square mile 3-D seismic survey over both their acreage, and surrounding acreage, in their Gwydyr Bay prospect area last winter, investing more than $44 million on land, seismic and drilling, he said.

“This winter our joint venture group will be among the most active of explorers as we plan to shoot over 200 square miles of new seismic data on the extreme western and eastern sides of the Central North Slope and to drill up to four exploration wells.”

BRPC Group has Nabors 27 Rig under contract and is planning to drill one or two wells near North Shore No. 1, Thompson said, in hopes it “can discover a sufficient volume of oil to warrant a commercial development at Gwydyr Bay.”

The partners are also planning to drill a prospect south of the Alpine field, which is part of ConocoPhillips’ Colville River unit.

$40 million budget

“We will drill our Tofkat No. 1 well (Titania prospect area) … and also drill a fourth exploration well on a prospect to be named,” spending more than $40 million on seismic and drilling in the winter of 2007-08, Thompson said.

If the “North Shore oil completion test is as suspected and one of the wells strikes oil close by, we may proceed with North Shore development with more substantial capital investment in the winter exploration season of 2008-09.”

TG World said in an October press release that if Tofkat No. 1 is a discovery, the partners “may choose to drill a sidetrack well this winter season to help delineate the reservoir extent.”

The 2007 seismic shot over the Gwydyr Bay prospect area “has identified two small satellite prospects to North Shore No. 1 that can be reached from the North Shore No. 1 drilling pad,” TG World said. “The first satellite prospect is expected to be drilled after Tofkat No. 1 well operations are completed.”

The partners expect to select another well to drill during the 2007-08 season “from prospects in the Gwydyr Bay area covered by proprietary 3-D seismic data,” TG World said. “Final prospect selection is awaiting delivery and interpretation of the pre-stack depth-migrated seismic volume.”

In reference to the upcoming 2007-08 seismic program, TG World said the 3-D would be shot over portions of the BRPC Group’s lease holdings in the Slugger and Titania-Big Island prospect areas. Prospects developed from these surveys would be candidates for drilling in 2008-09 and 2009-10.

UltraStar targets April

UltraStar managing member, Jim Weeks, told Petroleum News Oct. 31, 2007, that the company has made “progress” on negotiations with BP, and now expects its Dewline Deep No. 1 well to be drilled from BP’s Point McIntyre 1 drill pad “in the early April (2008) timeframe.”

Weeks said “BP will manage the operation, but we will have an onsite geologist to make necessary decisions.”

Weeks first talked about drilling the Dewline prospect, which is west of Point McIntyre in the Prudhoe Bay unit, in 2005.

But the owners (overlapping) of UltraStar and its sister company Winstar Petroleum, considered it essential to have a commercial arrangement for producing and selling oil before committing money to drilling a well. Without the use of existing facilities it would be uneconomic to develop the modest sized accumulations that Winstar and UltraStar seek, Weeks said.

Dewline Deep oil would be processed at the nearby BP-operated Lisburne facilities where Point McIntyre oil is processed.

That's still the plan, but what’s come out of the negotiation with BP since 2005 is a slightly different approach.

The plan now, Weeks said, is to petition the state Division of Oil and Gas to expand the Prudhoe Bay unit to include the UltraStar lease with the Dewline Deep No. 1 well location, rather than keeping it independent.

But what’s come out of the negotiation with BP since 2005 is a slightly different approach. The plan now, Weeks said, is to petition the state Division of Oil and Gas to expand the Prudhoe Bay unit to include the UltraStar lease with the Dewline Deep No. 1 well location.

BP has agreed to it, and thinks the other Prudhoe owners will also agree, Weeks said.

“Putting us in the unit puts us under BP’s contingency plan, and so forth. We will have to buy insurance to indemnify BP and the other PB owners, but we think it’s a good idea,” he said.

The expansion has to be applied for prior to drilling in April.

“We’ve just finalized a document that has to be filed with the expansion papers … called a joinder. It establishes the terms and conditions under which UltraStar joins the PBU,” Weeks said.

Charter key agreement

Weeks sees a document called the Charter for the Development of the Alaskan North Slope, signed between the State of Alaska, BP and ARCO in 1999, as critical for small companies wishing to explore on the Slope. The charter obligates BP and ConocoPhillips to provide access to their North Slope facilities for third-party satellite fields on “reasonable commercial terms.”

And there’s a requirement for binding arbitration in the event of stalled negotiations.

“Without the charter we wouldn’t even be here,” Weeks said.

The charter also requires BP and ConocoPhillips to purchase oil from small producers, enabling small producers to avoid the need to establish costly shipping arrangements for their oil.

Another provision of the charter, a requirement that BP and ConocoPhillips make seismic data available for license, has proved vital for Winstar and UltraStar. It’s simply too expensive for a small company to shoot 3-D seismic over a small lease area on the North Slope, Weeks said.

And this 3-D seismic proved to be the critical factor in finding its Dewline Deep prospect — UltraStar obtained some additional seismic from the Prudhoe Bay owners to pinpoint the prospect. That seismic increased the coverage from eight square miles to 23 square miles, a critical factor in tying seismic times to depths under the permafrost, Weeks said.

But don’t expect another major oil field. Although the prospect shows good potential, the oil accumulations are likely to be modest in size — the drilling isn’t going to find 100 million barrels, Weeks said. “At Gwydyr Bay the Ivishak has notoriously small fault traps.”

But what’s considered a very small field on Alaska’s North Slope — 5 million to 20 million barrel range — is a big coup anywhere else in the country. Especially at today’s oil prices.

UltraStar and Winstar are based in Petersburg, Alaska.

Savant fully funded, ready to roll

Savant Alaska, a closely held limited liability company that is an affiliate of Denver-based Shaw Resources, was “fully capitalized to go forward” with exploration when it won its first Alaska leases in the state’s March 1, 2006, Beaufort Sea areawide lease sale.

The company wasn’t looking for partners; just a drilling rig.

It wasn’t able to get permitted and a rig in time for 2006-07, but the company is set to drill its Beaufort Sea Kupcake prospect in the upcoming season of 2007-08.

“We have Kuukpik No. 5 under contract to drill the well and expect to spud before Feb. 15, 2008,” Savant COO and Executive Vice President Greg Vigil told Petroleum News in mid-October 2007.

Kupcake is adjacent to BP’s Liberty prospect and is expected to hold approximately 100 million barrels of recoverable oil.

The Kupcake well site is in 14 feet of water about three miles offshore in Foggy Island Bay, approximately 8,000 feet west of the Liberty No. 1 discovery well. Savant plans to drill to a depth of 11,000 feet in section 29, T11N, R18E, UM in order to test the Kemik formation. (BP has pegged Liberty’s recoverable oil at between 120-130 million barrels and is currently moving toward field development.)

The Kupcake project has an approved oil spill plan and is completely permitted except for the “APD permit from AOGCC,” which the company can’t get until it becomes “a signatory on Prudhoe Bay unit ballot 201 for waste disposal,” Vigil said in August.

“Once we have that document … become a signatory, we can get our APD,” he said.

By mid-October things had progressed: “We should submit the final permit to drill by the end of the month. BP has indicated the ballot is circulating amongst the PBU owners.”

Although Savant was not looking for investors in its project, the company has been expanding its prospect lease base.

In late 2006, independent True North Energy Corp., also a newcomer to Alaska and a leaseholder in the Cook Inlet basin, farmed-in 120 acres into Kupcake where Savant held 1,291 acres. No cash was involved in the deal. Vigil said in October 2007 that Savant expects the final acreage ownership in the pooled area to be 91.5 percent Savant’s, and 8.5 percent True North’s.

“We hope to enter into a couple of farm-in agreements proximal to our acreage. The deals are imminent and we will comment once they are official,” he said.

In addition to Kupcake, Savant has 14,646 acres under lease from the State of Alaska, Vigil said. “We have evaluated 193 square miles of 3-D seismic data under license from BP (Badami and NW Badami surveys). We have additional prospects but do not care to comment on them at this time given their sensitive nature.”

Erik Opstad is Savant’s operations contact in Alaska.

In April 2007, the company hired F.X. O’Keefe, the former head of BP’s exploration department in Alaska, as its director of business development. O’Keefe is “primarily responsible for advancing the company’s growth platform in Alaska,” Vigil said in April.

When asked if Savant was interested in acquiring more oil and gas leases north of the Brooks Range, Vigil said yes, but not elsewhere in the state.

Kenai first, then Burglin

Following an Oct. 29, 2007, decision by the Alaska Oil and Gas Conservation Commission to further reduce the potential unassisted oil flow from the North Slope Burglin No. 33-1 well, San Antonio-based Alaskan Crude says it will proceed with plans to re-enter the well in the winter of 2008. But first, Alaskan Crude will re-enter the Amarex Moose Point No. 1 well on Southcentral Alaska’s Kenai Peninsula.

“We’ll drill Amarex well first, then send our rig to the North Slope to re-enter the Burglin 33-1 well in the Arctic Fortitude unit,” Jim White, president of Alaskan Crude, told Petroleum News Oct. 30. “… Our first plan (for Burglin) is to test the Ugnu, and then evaluate what we have and make a decision as to the next step. ... The area is oil and gas prone.”

One and a half miles southeast of the Deadhorse airport, the 6,363-acre Arctic Fortitude unit sits on the south side of the Prudhoe Bay unit, immediately east of the NE Storms unit, within three state leases — ADL 389178, ADL 38179 and ADL 389177.

Similar to Aurora’s rig

Alaskan Crude’s drilling rig has a top drive and is similar in size to Aurora Gas’s AWS 1 rig, White said. “Nice little pony — actually, it’s a race horse,” he said. “The rig is set to go at Amarex. We’re waiting for cold weather to freeze the ground.”

Alaskan Crude will use a snow road to truck its lightweight drilling equipment three miles from the Haul Road to the Burglin well, White said.

The original Alaskan Crude Corp. drilled the Burglin well down to Ivishak formation in 1984-85. The well was suspended in 1985 and the original company subsequently went bankrupt. Jim White later bought the company and acquired the Burglin leases in a state lease sale.

A key issue in the delayed drilling at Burglin has been the need for an oil spill contingency plan. Under state statutes and regulations, a company drilling an oil well needs a contingency plan for responding to an oil spill up to a maximum potential rate of unassisted flow for the well.

Going back and forth with AOGCC over a period of months, Alaskan Crude eventually amended its drilling plan to re-enter only the Ugnu formation. As a result, on Oct. 29 AOGCC reduced the unassisted oil flow potential for the well to 115 barrels per day, for an Ugnu test.

White, a long-time Alaska oil and gas investor and explorer, said he drilled his first well “in Alaska in 1977.”

Renaissance has Arctic Wolf

Renaissance Umiat executive Mark Landt told Petroleum News in October 2007 that the company was in the process of permitting 10 wells in the Umiat oil field, which straddles the eastern border of the National Petroleum Reserve-Alaska.

Because the Umiat reservoir, which holds very light oil, is just 200 to 1,400 feet deep, Landt expects to get seven or eight wells drilled this winter using the Doyon-Akita Arctic Wolf rig, which Renaissance has under contract.

The company, he said, would likely be sharing some ice road and logistical costs with big independent Anadarko Petroleum, which plans a well at the nearby, undeveloped Gubik gas field.

In addition to drilling, Renaissance plans to contract with PGS Offshore to shoot 2-D and 3-D seismic in the Umiat field area, Landt said.

The U.S. Geological Survey estimates Umiat holds 70 million barrels of recoverable oil, but Renaissance has put estimates closer to 100 million barrels.

Landt said the U.S. Navy drilled 11 wells in the Umiat field in the 1940s and 1950s, plus a deeper test well, the No. 1 Seabee, in 1979. The reason the field has not been developed is “generally due to the remoteness from infrastructure and pipelines and due to historically low oil prices,” he told Petroleum News in March 2007.

One challenge the field poses is that some of the oil is in permafrost, he said.

Renaissance contracted with ASRC Energy Services for permitting, environmental and community outreach, Landt said.

Renaissance Umiat, a limited liability corporation, was founded on March 1, 2007. Sister company Renaissance Alaska LLC, a Cook Inlet basin leaseholder, was founded in November 2006.

Renaissance Alaska is owned by its employees and ARC Financial Corp. Renaissance Umiat is owned by Renaissance Alaska, Rutter and Wilbanks Corp. and Arctic Falcon Exploration LLC.

James Watt is president and CEO of Renaissance Alaska; William Allen Huckabay, executive vice president of exploration and production; Mark Landt, executive vice president of land and administration; Michael Cook, vice president of drilling and operations; Vijay Bangia, vice president of reservoir engineering; David J. Doherty, chief geologist, and Charles Gartmann, chief geophysicist. Renaissance Alaska is the sole managing member of Renaissance Umiat.

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A word from Savant to state, feds

When asked what Savant saw as major obstacles to exploring and developing oil and gas fields in Alaska, Greg Vigil, Savant’s executive vice president and chief operating officer, e-mailed the following reply:

Barriers to entry are: 1. Permitting process is too cumbersome. We have multiple bonds on file with multiple state agencies. This should be streamlined to have one bond with the state that is applicable to all state agencies. Cost to permit our exploration well will exceed $500,000 and have been required to interact with multiple agencies to permit the well — way too much redundancy — the state will have a hard time attracting independents as long as this is the case.

2. Acreage held by unit and production is excessive. Acreage clearly outside unit pools is allowed to be held by the unit indefinitely by the state. They should contract all of their acreage to the PA (participating area) for a given unit instead of allowing any tract in contact with the PA to be held. This would either encourage unit owners to develop the fringe acreage or lose it to those who would be willing to do so.

Also there are numerous cases of old production tests holding leases for decades. The state should not allow leases to be held by production for an unreasonable amount of time. Independents generally like to explore around existing fields and this makes it difficult.

3. Exploration pollution bond is a major barrier to entry. We will have to obtain insurance for roughly $800,000 to comply with our C-Plan bond +/-$75million. The state would encourage more independents to come to Alaska to explore if they would set up a trust fund to indemnify C-Plan requirements. When was the last time there was an exploration blowout on the Slope? Bad policy.

4. Lack of a stable tax regime. Uncertainty creates confusion and risk. We are still trying to understand the most recent legislation and how it will impact our ongoing and future efforts. The state needs to quit tinkering with the tax laws for E&P companies if it wants to encourage additional exploration. We factored the tax credit legislation into our original decision to enter and now we are not sure if they will be around when we finally drill.

5. Infrastructure. How many discoveries have been made but never developed because of a lack of infrastructure on the Slope. The second largest gas field in Wyoming was discovered because the exploration well was drilled just off a county road!!!! 10 tcf of gas found because infrastructure was available to a family-owned independent, McMurry Oil Co. — Jonah field. (John Martin and Mick McMurry are Savant investors; I am a former employee and shareholder of McMurry as well.)

Gov. Sarah Plain: Encourage, foster and enable independents to explore and good things will happen.