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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: Anadarko to drill first ANS gas well

Has two rigs under contract, drilling 2 Brooks Range gas prospects, going back to finish Jacob’s Ladder

Kay Cashman

Petroleum News

Anadarko Petroleum and its partners in the Brooks Range Foothills, BG Alaska and Petro-Canada, plan to drill the first two natural gas exploration wells in northern Alaska this winter. Gas discoveries to date have been an accident of oil exploration.

Anadarko and its partners hold oil and gas rights covering some 2.2 million acres between the Canning and Colville rivers along the southern border of the North Slope, also referred to as the Brooks Range Foothills.

In April 2007, the Houston-based independent’s Alaska spokesman, Mark Hanley, said the company and its Brooks Range partners would likely drill just one well on one of their four gas prospects in the 2007-08 North Slope exploration season, and one prospect per year after that if things were moving slowly with the proposed gas pipeline from the North Slope to Outside markets. But in September Anadarko told the state it would be drilling wells from ice pads on two gas prospects — Gubik and Chandler.

Obviously, something has changed since April, the most obvious thing being the passage of Alaska Gov. Sarah Palin’s Alaska Gasline Inducement Act, which Anadarko supported.

Over the past few years Anadarko has talked about drilling a gas well, but before making the investment company officials wanted to be certain a gas pipeline would be built — and would accept gas under reasonable terms. Under AGIA builders of a North Slope gas line have to treat all gas sellers fairly, even if North Slope oil producers and gas owners BP, ConocoPhillips and ExxonMobil, competitors of companies such as Anadarko, win state approval to build the line.

Hanley has told Alaska legislators that nonowners of the gas line have to have access to it and know that the line would be expanded if they discovered new gas fields or developed known discoveries. Access to the pipeline and a reasonable tariff were two of Anadarko’s chief concerns, and something the company did not see likely under former Gov. Frank Murkowski’s proposed gas line contract with BP, ConocoPhillips and ExxonMobil.

New rig for Foothills

Another reason Anadarko and its partners are drilling this year is because of lease stipulations: “We think they’re valuable leases, so that’s one of the motivations,” Hanley said.

Getting started so that they’ll be ready for a gas pipeline is important, but risky.

The issue, Hanley said, is not putting too much money into exploring if a gas pipeline doesn’t go ahead in the next few years. Alaska is already challenged by long lead times for developments, and the companies “don’t want to strand a lot of capital” by committing a lot of dollars if they don’t think a gas pipeline is moving forward.

“There’s (been) enough movement” on the gas line to motivate Anadarko to contract with Nabors Alaska Drilling to build a new a lightweight drilling rig and remote camp rig, which are scheduled to arrive on the North Slope in December 2007.

Nabors Rig 105 and the camp, Hanley said, would be owned and operated by Nabors, but were built at the request of the operator of the partnership “for a multi-year drilling program with extensions options” in the Foothills. The rig is a “mobile rig, not a wheeled rig, so it can be broken down and transported on rolligons.”

Back to Jacob’s Ladder

Anadarko has another rig under contract for winter 2007-08 drilling. The Akita 63 will be used on the other side of the North Slope at the company’s Jacob’s Ladder oil prospect, which Anadarko started drilling in the winter of 2006-07. The company told state officials it plans to go back in with a newly winterized Akita 63 to finish drilling.

Located 10 miles southeast of Prudhoe Bay, Jacob’s Ladder is considered an oil prospect in the Wahoo formation of the Lisburne group, with a potential reservoir in eroded cavities in Lisburne carbonate rocks. The eastern North Slope play is said to resemble the huge Yates field in Texas.

The Jacobs Ladder unit includes the Lisburne structure in the Ivishak formation of the Sadlerochit, rocks equivalent to the reservoir of Prudhoe Bay.

State Division of Oil and Gas geologists believe the Lisburne (Wahoo formation) structure in Jacobs Ladder could yield a range of 20-660 million barrels of oil equivalent and the Sadlerochit (Ivishak formation) structure could yield a range of 50-800 million barrels of oil equivalent.

Because the unit is located off the North Slope road system, Anadarko sought partners to help defray the expense of exploration. It secured Arctic Slope Regional Corp. and BG Alaska as joint venture partners.

Depending on what it finds at Jacob’s Ladder, Anadarko might do more drilling there or drill another nearby prospect.

On Native land

Gas wells planned for the first winter include the 5,000-foot Gubik No. 3 and the 12,500-foot Chandler No. 1. Anadarko said all surface and bottom-hole locations are on ASRC-owned lands; directional drilling may be used for one or more of the wells.

Anadarko said the planned drilling operations are along the east side of the Colville River near Umiat. Six proposed drilling locations at the Chandler prospect are southeast of Umiat. Six proposed Gubik prospect locations are northeast of Umiat.

The U.S. Geological Survey has estimated that the Gubik field, which was drilled by the U.S. Navy during oil exploration in 1951, holds some 600 billion cubic feet of recoverable gas in three horizons — the Prince Creek Formation and Chandler and Ninuluk formations.

Partners in risk

A commitment to finding large, long-term prospects in remote areas of northern Alaska underlies Anadarko’s strategy in Alaska, Greg Hebertson, Anadarko’s Alaska-Canada frontier project manager, and Hanley, told Petroleum News in 2005. The company wants to develop large fields that can be hubs for the development of smaller prospects.

“We’ve been in Alaska since 1993 and we’ve been continually investing in Alaska ever since that time,” Hebertson said. “We’re looking for the hundreds of millions of barrels, and because they are far from infrastructure … they need to be a substantial size.”

Exploring for large petroleum accumulations far from existing infrastructure entails higher than average risk.

“As you get more and more frontier you get a higher reward, higher risk portfolio,” Hanley said. To mitigate those risks, Anadarko works with partners that can share the risks and rewards, and can handle the commercial costs associated with operating in Alaska.

Anadarko has been partners with ConocoPhillips since the discovery of the Alpine field by an ARCO-operated partnership in 1994. In addition to partnering on the development of Alpine and its satellites in the Colville unit, Anadarko has an exploration joint venture with ConocoPhillips (operator) and Pioneer Natural Resources in the National Petroleum Reserve-Alaska.

The partners, which have drilled several NPR-A wells, including two wildcats in the winter of 2006-07, relinquished 300,000 acres in NPR-A in 2007 because of noncommercial finds and the costs of working so far from infrastructure.

Brief stint with Nikaitchuq

In 2006 Anadarko acquired Kerr-McGee, including majority interest in KMG’s Nikaitchuq and Tuvaaq units, under consideration for development as a merged unit. If Anadarko had kept the acreage it would have been the operator of its own oil field and production facilities.

But in early 2007, Italian mega-major Eni made Anadarko an offer it could not refuse for all of Anadarko’s acreage in both units and the surrounding area.



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Shippers, state praise ‘first step’

Alaska officials and shippers Anadarko Petroleum Corp. and Tesoro Alaska Co. have hailed a federal judge’s decision to lower tariffs for the trans-Alaska oil pipeline as “important” and beneficial.

But the ruling by Administrative Law Judge Carmen Cintron of the Federal Energy Regulatory Commission “is non-binding and reflects her opinion only,” said Daren Beaudo, a spokesman for BP Exploration (Alaska) Inc., which owns slightly more than 50 percent of the pipeline.

“The commission has yet to decide the case. This is still in the early stages, and the decision when it comes likely will be appealed by one or more of the parties,” Beaudo said May 23.

“It is an important issue, and we are confident that we’ve complied with our agreement with the state and that we’ve followed the law,” he added.

FERC’s five commissioners are expected to review the case and render a final opinion by year’s end or in early 2008.

Gov. Sarah Palin immediately praised the ruling May 17, saying that it “reaffirms the need to ensure low tariffs on oil and gas lines.”

“This is why we spent a great deal of time working on structuring the Alaska Gasline Inducement Act to maximize value for the state and ensure low tariffs. We’re pleased with the FERC decision, and we look forward to continued progress on this issue,” Palin said.

State could collect $600 million

“It’s certainly a good thing, both in terms of moving forward with AGIA and oil revenues for the state,” said Jon Iversen, director of the Division of Tax at the Alaska Department of Revenue. “We’re looking at the assumption that the case will be resolved in 2010,” Iversen said. If Cintron’s ruling prevails, “the refund … to the state would be around $500 million, with about $100 million more in interest.”

The figures are based on state auditors’ estimates of tariff overcharges from 2005 through 2008.

“For nonowner oil shippers on the pipeline, the judge’s decision will significantly improve the economics of doing business in Alaska, and in turn, significantly improve the state’s oil and gas investment climate,” said Antony Scott of the Alaska Department of Natural Resources Division of Oil and Gas.

“The difference is on the order of $3 a barrel. It’s the equivalent of raising a company’s stress price for making investment decisions. If a company decides to do business based on a stress price of $30, then $3 would be 10 percent. And that’s a big deal!” he said. Scott recalled Conoco Inc.’s chairman and CEO complaining in the mid-1990s about the TAPS tariffs before that company pulled out of Alaska after developing the Milne Point field.

Conoco sued the pipeline owners over the tariffs, and did not return to Alaska until it merged with Phillips Petroleum Co. and became one of the pipeline’s owners.

“Judge Cintron’s ruling supported our contention that the TAPS rates were excessive,” said Anadarko spokesman Mark Hanley. “Compared to this year’s (tariff), which on average is $5.11 a barrel, that’s a considerable difference. It’s a big first step.”

The ruling also reinforces the Regulatory Commission of Alaska’s decision several years ago to lower in-state tariffs to the $2 a barrel range, Hanley said May 22.

The five pipeline owners appealed the RCA decision, which was upheld in a lower court and now awaits a decision by the Alaska Supreme Court.

—Rose Ragsdale

Editor’s note: The above article is an abbreviated version of a sidebar. For the full story go to http://www.petroleumnews.com/pdfarch/630315958.pdf#page=1.