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Vol. 17, No. 48 Week of November 25, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

Explorers 2012: Pioneer doubling down on Oooguruk

Expanding its signature Alaska oil development in numerous ways, from exploration to drilling to completion

Eric Lidji

For Petroleum News

A pair of successful wells in early 2012 is guiding the way Pioneer Natural Resources Alaska Inc. approaches its Oooguruk unit in 2013, and potentially for years to come.

After a completion technique used on one well helped the Texas independent post a 25 percent production increase, Pioneer now plans to use the technique on four more wells.

And an exploration well into a shallower interval at Oooguruk yielded a 50 million barrel discovery, setting the stage for a potential onshore development component at the unit.

Testing fracture designs

Pioneer drilled three important wells at the Oooguruk unit this past winter: the Nuiqsut No. 1 development well, and the Nuna No. 1 and Sikumi No. 1 exploration wells.

After successfully using a mechanically diverted fracturing system at its Eagle Ford and Spraberry operations in Texas, Pioneer evaluated the method in Alaska earlier this year on a well into the Nuiqsut formation. Also known as “plug and perf,” the technique is thought to be more effective than a dynamic diversion fracturing system because it can focus more energy at the point of fracture and stimulate a larger portion of a reservoir.

The well produced at an initial rate of 4,000 barrels per day, making it “by far our best Nuiqsut well,” Pioneer Chief Operating Officer Tim Dove said in May 2012.

Based on these initial results, Pioneer now plans use the technique on four new development wells at Oooguruk this winter. “Those fracs will not be done until well after the freeze,” Dove said during an earnings call in August. “We need space for the frac fleet and we need space for frac tanks and other equipment. We really need ice for space around the island. So we really won’t be getting to those fracs until probably February.”

With the help of the development well, Pioneer produced 5,000 net barrels of oil per day at Oooguruk in the second quarter, up from 4,000 net bpd in the first quarter. Although that represents the first quarter-over-quarter increase at the unit in two years, production remains below its peak of 7,000 net bpd from the second and third quarters of 2010.

Two wells, two outcomes

Nuna No. 1 tested at an initial production rate of 2,000 barrels per day from the southern extent of the Torok formation, the shallowest of the three producing formations at Oooguruk, underpinning what Pioneer believes is a 50 million barrel oil discovery.

While Nuna No. 1 is currently shut in pending future onshore production facilities, Pioneer plans to drill an “appraisal” well this coming winter to further test the Torok.

“The idea is offsetting the excellent well we drilled last winter and evaluating the potential for development,” Dove said, noting that the company has already begun front-end engineering and design work on onshore facilities needed to develop the prospect.

Pioneer drilled Nuna No. 1 directionally from a pad some 2.5 miles northwest of Kuparuk River unit drill site 3S, and said it expects to drill the appraisal well in a similar fashion.

The state expanded the Oooguruk unit last year to include four leases along its southern edge to bring the entirety of the Torok formation into the unit boundaries. In return, Pioneer must decide by June 30, 2014, whether it plans to sanction Nuna. If so, the company plans to build the Nuna DS-1 pad by June 30, 2015 and begin drilling in 2016.

The Sikumi No. 1 well, though, proved to be a dry hole.

Pioneer drilled the offshore well from an ice pad two miles southwest of Oooguruk Island as a “deep test” of the Ivishak formation. The well was wet, and although it encountered some gas in another zone, it was “basically non-commercial,” Dove said. Pioneer plugged and abandoned Sikumi No. 1 and wrote down a $19 million loss for the well.

Pioneer is currently running a one-rig development program at the Oooguruk unit, targeting all three formations at the field: the Kuparuk, the Nuiqsut and the Torok.

Pioneer operates Oooguruk and holds a 70 percent working interest in the Oooguruk unit, and the Italian supermajor Eni Petroleum holds the remaining 30 percent interest.

All about Oooguruk

Over its first decade in Alaska, Pioneer sniffed around exploration ventures on the North Slope and in Cook Inlet before eventually focusing its attention on Oooguruk.

As one of the players Armstrong Oil and Gas brought to Alaska in the early 2000s, Pioneer decided it would work to shorten the time it took companies to bring new fields into production in the state. Toward that goal, Pioneer bought a majority stake in the offshore Northwest Kuparuk prospect — now known as Oooguruk — and became the first independent operator on the North Slope when it brought the field online in June 2008.

Pioneer racked up other prospects, too. But in late 2007, after participating in five exploration wells with discouraging results, the company relinquished some 300,000 acres of federal leases in the National Petroleum Reserve-Alaska held in partnership with ConocoPhillips and Anadarko Petroleum, and doubled down on two nearshore developments efforts: the Oooguruk unit and the Cosmopolitan unit in Cook Inlet.

Through drilling results and improved techniques, Oooguruk exceeded expectations.

In early 2009, Pioneer increased its resource estimate at Oooguruk by 40 percent and in late 2010 it began developing the Torok, the third and shallowest formation at the unit.

After years of drilling wells through Torok to get to the deeper Kuparuk and Nuiqsut formations, Pioneer accumulated enough information to justify development. According to Pioneer, the Torok formation at Oooguruk consists of 200 to 250 feet of thinly laminated sands and shales located some 1,000 feet above the Kuparuk formation.

Because the Torok reservoir extends past the southern boundary of Oooguruk, Pioneer proposed the Nuna Development Project to approach it from onshore facilities.

As envisioned, Pioneer would drill between 35 and 65 horizontal wells from two onshore pads, primarily targeting the Torok but also possibly the Kuparuk, Nuiqsut and Ivishak.

When the state approved the Torok participating area at Oooguruk in summer 2011, Pioneer estimated the area contained 690 million barrels of original oil in place and said it could recover as much as 25 percent using primary and enhanced recovery techniques.

But Pioneer also saw production declines in the order of 1,000 barrels per day because of a shortage of seawater injected into the field as part of the enhanced oil recovery at Oooguruk. Pioneer said it is currently seeking options to increase its seawater supply.

Leaving Cosmopolitan

Cosmopolitan didn’t make the cut, though.

Although discovered in the 1960s, the prospect off the coast of the southern Kenai Peninsula lay dormant until ConocoPhillips formed the Cosmopolitan unit in 2001.

ConocoPhillips encountered oil in a well in 2002, conducted a test on a sidetrack in 2003 and completed a 3-D seismic survey over the unit in 2005 before selling to Pioneer.

Pioneer drilled a lateral off the sidetrack in 2007 and re-entered the lateral in 2010.

A flow test soured the company somewhat on the viability of the prospect, but despite saying the reservoir was “lower quality than most other producing oil fields of the Upper Cook Inlet,” Pioneer launched a pilot project to truck crude oil from flow tests up the Sterling Highway to the Tesoro refinery in Nikiski. In filings, Pioneer hypothesized it could produce up to 8,000 barrels per day from Cosmopolitan sometime after 2014.

But in early 2011, Pioneer left Cosmopolitan, saying that despite “encouraging” results from the workover and fracture stimulation, “subsequent flow test results and engineering studies indicated that the resource potential was not as large as originally estimated.”

Pioneer dropped the unit and all the acreage except two leases held by wells capable of producing in paying quantities. In February 2012, the Australian independent Buccaneer Energy Ltd. and the privately held Fort Worth-based company BlueCrest Energy Inc. announced plans to buy the prospect. The companies closed on the deal in August 2012.

Staying put in Alaska

Those plans have quieted talk among analysts that Alaska might be up for sale.

“It’s important for us to sit there,” CEO Scott Sheffield said when asked directly whether Alaska still remained a candidate for divestment for Pioneer. “We have a lot of upside. We need to understand that potential upside before we make any long term decisions.”

For several quarters, analysts had presented Alaska and South Africa as potential capital-generating sales for Pioneer. While Pioneer recently sold its South Africa assets, Sheffield has said he sees Alaska “growing significantly over the next several years.”

During the Aug. 1 call, Pioneer said it wants to form a joint venture in the Wolfcamp Shale and is offering between 33 to 50 percent working interest in around 200,000 acres in the southern portion of the Midland basin to help accelerate development there.

Asked whether that joint venture, and the potential capital associated with it, would put to rest talk of additional divestments through 2013, Sheffield said, “All of our assets are for sale for the right price. So we will continue to look at performance of those assets and make that determination in the future, whether or not we should be selling an asset.”

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