After completing a two-well program at the Smith Bay prospect in early 2015, Caelus Energy Alaska LLC announced one of the largest oil discoveries in the history of the North Slope: a 6 billion to 10 billion barrel oil field, according to company estimates.
The Tulimaniq discovery promises to be a major story on the North Slope over the next few years. But the prospect is remote, which means that Caelus needs oil prices to climb high enough to support an expensive infrastructure commitment. And the prospect is near a region of the North Slope with a history of environmental debate, which could make permitting even more challenging than the typical oil and gas development in Alaska.
The local subsidiary of the Dallas-based independent postponed its plans to return to the area this winter, citing persistently low oil prices, ongoing fiscal uncertainty in Alaska and the recent veto of state tax credits. The company currently intends to continue its exploration program in the Tulimaniq region during the 2017-18 winter drilling season.
Although a decision about sanctioning remains years off, the company believes it could bring the prospect into production within five years from the start of development work.
And while the Tulimaniq prospect is the highest exploration priority for Caelus at the moment, the company is also touting the potential of a large swath of acreage it holds on the eastern North Slope between the Prudhoe Bay unit and the Point Thomson unit.
Caelus acquired the assets of Pioneer Natural Resources Alaska Inc. for $300 million in early 2014, after months of negotiations. The company currently operates the Oooguruk unit. The company has sanctioned the Nuna satellite of the North Slope field, although it recently delayed some work on the project in response to the current economic climate.
CT-1 and CT-2
Caelus acquired a 75 percent working interest in 26 leases in the Tulimaniq area from NordAq Energy Inc. in June 2015 and built upon existing NordAq permitting activities to quickly plan a two-well exploration program for the following winter drilling season.
The company permitted the CT-1 well as an amendment to an existing plan of operations from a previous drilling season and the CT-2 well under a separate plan of operations.
The two stratigraphic test wells were located near the mouth of the Ikpikpuk River, some 59 miles southeast of Barrow. The primary purpose of the exploration program was to collect rock samples and to conduct vertical seismic profiling within the wellbores.
Within a few weeks of finishing the program, Caelus was dropping optimistic hints.
“We’ve had very exciting and encouraging results from those two wells,” Caelus Energy Alaska Senior Vice President Pat Foley told state lawmakers at a Senate Resources Committee hearing in April 2016. “We are currently trying to plan activities to be back out there again next winter to continue with an appraisal program. I hope someday to get to appear before you to talk about our development plans at Smith Bay.” Speaking to the Alaska Support Industry Alliance in May, Foley added that the company was eager to return. “If you’re out here looking for oil, you’re looking for elephants, and that’s exactly what we’re doing,” he said. “We’re really excited about the wells that we drilled and the results that we found. We’re making plans right now to be back out again next winter.”
The upcoming program, according to Foley, would include a third well with a short horizontal lateral. The program would also include fracture stimulation and a flow test.
“We know that we’re on a path to a very giant oil field over there,” he added.
Those announcements came as Caelus was scaling back near-term Alaska operations. The company suspended drilling operations at its flagship Oooguruk unit and reduced its Alaska workforce by 25 percent, citing low oil prices and fiscal uncertainty in the state.
By the middle of the summer, those issues appeared to be complicating exploration activities, as well. “Those (issues) all go into the final hopper for planning and none of those are looking overly optimistic,” Caelus Alaska Director of Public Affairs Casey Sullivan said. “We’re continuing to evaluate our future plan and are hopeful for an additional price uptick and a time when we see some certainty in the fiscal system.”
Size and scope
Before embarking on its program, Caelus estimated Tulimaniq could be a 1 billion barrel field. But in an October 2016 announcement, the company far surpassed that estimate.
The two wells and the earlier seismic survey suggested the possibility of 6 billion barrels of oil in place at the Smith Bay leases, with the possibility of 10 billion barrels or more across the complete Smith Bay area, according to the company. A field of that size would rival the Kuparuk River field and could add some 200,000 barrels per day to the trans-Alaska oil pipeline - a 40 percent increase from current throughput along the pipeline.
“This discovery could be really exciting for the state of Alaska,” Caelus CEO Jim Musselman said in early October 2016. “It has the size and scale to play a meaningful role in sustaining the Alaskan oil business over the next three or four decades.”
The two CT wells found oil in a 1,000-foot vertical interval in the Torok formation. One well encountered 183 net feet of pay, and the other encountered 223 net feet of pay, according to Caelus. Although the initial program did not include flow testing, the company believes that its rock samples and seismic information support its claims. The company ran simulations suggesting potential production rates from 8,000 to 10,000 barrels of oil per day per well, or a total of 8 million to 9 million barrels of oil per well.
With additional testing, according to the company, the estimates might grow. And a sizeable natural gas resource at the field could support an enhanced oil recovery program, allowing the company to recover between 60 and 70 percent of the oil in place.
Challenges
Even with those impressive estimates, the Tulimaniq field is hardly a sure thing.
The geology is somewhat challenging. The oil is located in the Torok formation, which is part of the Brookian sequence. The sequence is known for having multiple sand bodies, rather than being a single massive sandstone unit, and often requires more advanced drilling techniques. But while the sands are fairly tight, the oil in the reservoir is light. The company believes it could develop the field using mechanical fracturing, which it also uses at Oooguruk. “We’re confident that the rocks here are fine,” Musselman explained in October. “It’s going to require horizontal wells. It’s going to require fracking.”
Because the Torok formation at Tulimaniq is equivalent to the Torok formation underpinning the Nuna development at Oooguruk, Caelus would be able to leverage its experience at the Nuna project to assist with its understanding of the Tulimaniq project.
And the Brookian formation is an important component of the exploration acreage that the company holds on the eastern North Slope, proving more opportunities for symbiosis.
Another major hurdle at Tulimaniq is the cost.
Developing the field would cost between $8 billion and $10 billion, requiring sustained oil prices in the mid-$60 per barrel range, according to Caelus CEO Jim Musselman.
A major portion of that hypothetical Tulimaniq budget would go toward an $800 million pipeline to connect the field to existing North Slope infrastructure, some 125 miles away. In addition to being remote, the Tulimaniq field is located in near-shore waters ranging from 4 inches to 10 feet in depth, which adds engineering complications.
The ongoing development costs would also likely include four pads to support some 400 wells, as well as building independent processing facilities, according to Caelus. By comparison, ConocoPhillips Alaska Inc. has drilled nearly 200 wells from five drilling pads at the Colville River unit since bringing the main Alpine field online in 2000.
In an idealistic aside, Musselman noted that road from the Colville River unit facilities to Barrow, passing the Smith bay field, would knock $1 billion off the project price tag.
Previous work
The Caelus program followed previous exploration activity in the area.
The nearby Cape Simpson is home to a well-known natural oil seep and various companies throughout the decades have encountered oil with explorations wells.
The largest and most comprehensive program dates to the second half of the 2000s.
The Talisman Energy Inc. subsidiary FEX commissioned a seismic survey in the region and drilled three National Petroleum Reserve-Alaska wells - Amaguq No. 2, Aklaqyaaq No. 1 and Aklaq No. 6. All three wells found oil, but FEX never pursued development.
FEX considered Amaguq No. 2 to be “subcommercial given current infrastructure” and plugged the well. The company suspended the other two wells, which had better results.
FEX provided “initial estimate of contingent resources present” between 300 million and 400 million barrels net for its 80 percent working interest in the leases. The wells had encountered more than 225 feet of net hydrocarbon-bearing sandstones. Talisman also touted “significant follow-up potential on many similar structures on Talisman’s acreage if commercial productivity is proven,” based on log analysis and “strong gas and oil shows, including oil staining and free oil in the drilling mud in one of the wells.”
But the company eventually left Alaska, having grown frustrated by the challenging logistics of operating in the Arctic and the inconsistencies of the federal leasing program.
For the winters of 2013-14 and 2014-15, the small Alaska independent NordAq Energy Inc. permitted a two-year eight-well program in the same area. The proposal included 14 well locations, including 10 sites at the Tulimaniq prospect in Smith Bay.
Logistical issues forced the company to delay its program by one year, to the start of 2015. The company permitted the Tulimaniq No. 1 well in February 2015 but never drilled the well and sold a majority interest in the leases to Caelus a few months later.
Eastern acreage
While the Tulimaniq prospect is the main exploration focus at the moment, Caelus has also been making progress at its acreage on the eastern end of the central North Slope.
Prior to the Smith Bay acquisition, the company began compiling more than 350,000 acres between the Prudhoe Bay and Badami units. By early 2016, the company had completed a seismic program over the acreage. “We started to work on that data and we’ve found some really exciting turbidite fans on that,” Foley said in May 2016.
The layers and channels of turbidite formations typically create compartmentalization, which can make development tricky. Caelus has been focusing on these formations at Oooguruk, Tulimaniq and apparently at its eastern exploration acreage as well. The idea is to chase sizeable plays that were passed over when technology was more rudimentary.
In addition to the Brookian targets, the company is also considering some significant possibilities in an older and deeper sequence in the region known as the Ellesmerian.
When Caelus announced its Smith Bay discovery, in October 2016, Musselman estimated that the eastern leasehold could contain some 500 million to 750 million barrels of oil.
