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Vol. 11, No. 28 Week of July 09, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

New North Slope unit approved by state

Tiny independent Alaskan Crude makes substantial exploration work commitments, plans to drill in summer to keep costs down

Alan Bailey & Kay Cashman

Petroleum News

A tiny independent oil and gas company has received state approval to form an exploration unit adjacent to Prudhoe Bay on Alaska’s North Slope.

If that company — Alaskan Crude Corp. — meets the financial and work commitments set by the state in its four-year unit exploration plan it will be the first company of its size “to successfully operate on the North Slope,” the Division of Oil and Gas said in its June 29 findings and decision document on the 6,363-acre Arctic Fortitude unit.

Even though it involves lease extensions, approving the unit is “in the state’s interest because it would serve as an example for other similarly sized firms to follow, thereby promoting interest in further development of North Slope oil and gas reserves by companies of a similar size, of which there are many hundreds in North America,” the division said.

One and a half miles southeast of the Deadhorse airport, Arctic Fortitude sits on the south side of the Prudhoe Bay unit, immediately east of the NE Storms unit, within three State of Alaska oil and gas leases that were due to expire July 1. Unitizing the leases — ADL 389178, ADL 38179 and ADL 389177 — extends their expiration date as long as financial security and work commitments are met, the division said.

Money refunded if work done

The initial plan of exploration for Arctic Fortitude runs from June 30 of this year to June 30, 2010. The plan has commitments that call for the workover and testing of the 1980s’ Burglin No. 33-1 well by Oct. 1, 2007; and drilling two new wells, one on each of the other leases, and shooting 3-D seismic over the entire unit by July 1, 2010. One of the new wells or the seismic program must be completed by Nov. 1 2009.

Because Arctic Fortitude’s owners did not do any substantive exploration during the seven-year term of the three leases, the division is requiring they compensate the state for unrealized bonus payments while they are evaluating the oil and gas potential of the unit and its leases are being withheld from the state leasing program.

The first payment is $60,000, due Aug. 15. If it is not made by 5 p.m. that day, the unit will automatically terminate at 5:01 p.m.

Subsequent payments of $60,000 are also due in 2007 and 2008. The money can be recouped if the owners meet the unit work commitments over the four-year exploration period.

In its annual report to the division Alaskan Crude is required to incorporate “new well test, drilling, or seismic data … into an analysis that more fully defines the extent of the unit area.” The analysis must include “structural contour maps showing the extent of the sands that are likely to be economic, estimates of hydrocarbon contacts, and geologic cross-sections” through the existing unit and adjacent wells.

Webb VP of regulatory affairs

The working interest owners of the three Arctic Fortitude leases are James W. White and James A. White. Unit operator Alaskan Crude is run by company president James “Jim” W. White of San Antonio, Texas.

The company, which the division describes as having a “long history of leasing and prospecting in the state,” also owns leases on Alaska’s Kenai Peninsula where it is planning to re-enter the Moose Point No. 1 oil exploration well in search of natural gas.

Former Division of Oil and Gas natural resource officer Bruce Webb is Alaskan Crude’s vice president of regulatory affairs. He told Petroleum News in a recent interview that in the 1980s the company, under a different ownership structure, constructed three well pads on the three Arctic Fortitude leases.

In 1984-85 it drilled the Burglin No. 33-1 well in the Ivishak formation, the main reservoir formation in nearby Prudhoe Bay.

After testing, the Burglin No. 33-1 well was suspended and all work was discontinued on the leases.

Alaskan Crude ran into difficulties in the early 1990s, Webb said, which was the reason the company didn’t do more drilling.

“In the late ‘80s and early ‘90s when the market and everything crashed they ended up going bankrupt,” he said.

Jim White bought the bankrupt company and repurchased the three leases in a state lease sale.

Re-entering the Burglin well

In its re-entry of the Burglin well this coming winter Alaskan Crude plans to test several intervals including the West Sak/Ugnu, the middle Cretaceous Brookian and a portion of the Ivishak formation. Webb said the well is down dip from the Prudhoe Bay field. There is a significant geologic fault between the Arctic Fortitude unit and the adjacent NE Storms unit, he said.

The Burglin well penetrated the Ivishak, which appeared to be a little wet, Webb said. But there are questions regarding the testing done in the Ivishak, he said.

“There is talk that the well tests were inconclusive because the formation lost a lot of drilling fluid and, when they flowed the well, what they got back was the drilling fluid they lost and they didn’t flow the well any further,” Webb said. “… They didn’t even flow it long enough to get formation water, so we think that there’s a possibility that we can go back in and perforate it in different zones.”

And, he said, there is also oil potential in multiple horizons above the Ivishak.

“If you go up higher in the interval, into the Kuparuk sand, the West Sak, the Ugnu, there are oil shows in all of those,” Webb said. “The geologist that is working with Alaskan Crude terms it relic oil — oil that was from when the Prudhoe Bay accumulation was much larger. When it migrated, some of the oil was left.”

And the original drillers bypassed a heavy oil accumulation in good reservoir sands in the West Sak, he said.

“They weren’t going for the smaller accumulations of heavy oil,” Webb said.

Oil at $70 per barrel makes that type of accumulation economic, he said, noting that Jim White has experience in developing heavy oil in West Texas, using specialized production methods.

The well also has potential for gas production, Webb said.

“We believe they encountered gas around the Kuparuk and Saddlerochit,” he said.

Division less enthusiastic

The division was less enthusiastic about the Burglin well (based on the information it had.). Here is part of what the agency said about the well in its unit decision:

• The Burglin 33-1 well was cored, logged, perforated and tested in several formations, including sandstone intervals within the Ugnu, West Sak, Shublik, Brookian, Albian, HRZ, Kingak and Saddlerochit. None of the tests yielded hydrocarbons that would flow to the surface. The well encountered hydrocarbon indications on the mud log at several intervals and was suspended.

• Data submitted by Alaskan Crude “consists of the Burglin 33-1 open hole resistivity, sonic and mud logs, gyroscopic survey, a detailed mud log of the cored intervals, and maps from the June 1974 report ‘In Place Volumetric Determination of Reservoir Fluids, Saddlerochit Formation, Prudhoe Bay Field’ prepared for the State of Alaska by H.K. Van Poollen and Associates. Hand contours were added to one map from this report, the Isopach of Net Oil Sand Upper Zone, Saddlerochit Reservoir, Prudhoe Bay field, but the basis for the contours is not disclosed or discussed.”

• The application included daily drilling records which mention numerous drill stem tests performed in the Burglin 33-1 well (Sec. 33, T10N, R14E, U.M.) which was drilled to a total depth of 9,458 feet in the Ivishak formation. DST results from the well were not definitive and Alaskan Crude did not provide any engineering analysis.

• In addition to data submitted by Alaskan Crude, the division has a copy of a Core Laboratories core porosity and permeability report from the Burglin well. “This conventional core report indicates the API gravity extracted during standard core analyses yielded 24 to 26 API gravity oil from core #18 taken from 9,310 feet to 9,370 feet (measured depth) in the upper Ivishak sandstone. This could indicate the presence of flowable oil or residual oil left as oil migrated through the area.”

• “Data from the Burglin 33-1 well confirm the presence of shallower hydrocarbon reservoirs in the unit area, for example the Schrader Bluff formation, which produces commercial quantities of oil in the nearby Prudhoe Bay unit, Kuparuk River unit and Milne Point unit. The applicant proposes to evaluate these shallower intervals, which as demonstrated in these nearby units, may contain structural or stratigraphic traps.

• “While there was evidence of hydrocarbons in the Burglin 33-1 well, the limited geological information supplied by Alaskan Crude and otherwise available to the division neither clearly proves nor clearly disproves the existence of a … hydrocarbon accumulation or reservoir within the … unit.”

But the division acknowledged exploration for oil and gas is “not an exact science.” Well re-entry “using modern completion and drilling techniques may confirm bypassed oil and gas,” the agency said. “Surprises do happen” when hydrocarbons are discovered “in unlikely or previously unidentified formations.” (See sidebar for additional information about exploration results in the area supplied by the division in the unit decision.)

Summer drilling planned

Because Alaskan Crude will be using existing well pads it plans to drill during the summer when, Webb said, drilling costs are lower than in the winter.

“The plan is to mobilize all the drilling rig and equipment out there in the winter (2006/2007) … and do a summer (2007) exploration program,” Webb said.

The company plans to use one of two rigs it currently has on the Kenai Peninsula — probably the same truck mounted rig it uses to re-enter the Moose Point No. 1 well.

That rig can drill to about 7,000 feet with standard casing and perhaps 9,500 feet with a slim hole, Webb said. But, when re-entering an existing well such as the Burglin well, the rig is powerful enough to reach depths of 10,000 feet, he said.

The second rig Alaskan Crude uses is more powerful, but is also more difficult to mobilize, Webb said.

Oil spill contingency plan

Webb said Alaskan Crude’s biggest current challenge is obtaining the Alaska Department of Environmental Conservation’s approval for Arctic Fortitude’s oil spill contingency plan — a project the company has been working on for about a year with Oasis Environmental.

Webb said state bonding and financial responsibility requirements for oil spill response are expensive and do not encourage small independents to operate in Alaska.

“We don’t think the regulations are fair, especially if it’s a re-entry of the Burglin well,” Webb said. “It’s already drilled and cased and everybody knows what the formation pressures are all over the Prudhoe Bay. … They’re going to require you to have the same financial responsibility as though you’re drilling a well in Point Thomson where the pressures are very high.”

“The chances of having an uncontrolled flow or a blowout are next to zero but you have to come up with the same financial responsibility,” he said.

Arctic Fortitude has heavier oil that’s never been known to flow to the surface, Webb said, although he also said there may be gas present around the Kuparuk and Saddlerochit (see above), which division Director Bill Van Dyke said was a contradiction.

Additional wells

Following the Burglin re-entry, Alaskan Crude originally planned to drill a new well into the southwest corner of the unit, near the Hailstorm well that Pioneer Natural Resources drilled in early 2006. Alaskan Crude was going to directionally drill from the F2 pad in the northwest corner of Arctic Fortitude.

“That’s still up for discussion,” Webb said, “… (but) after talking to the geologists there may be other targets that we can just hit straight down.”

Hailstorm 1 was drilled in the NE Storms unit less than 1,000 feet from the southwestern corner of Alaskan Crude’s unit, and approximately five miles from the Burglin well.

Before drilling Hailstorm Pioneer said it would go to 10,000 feet through a portion of the Ivishak formation correlative to the interval from 9,803 feet to 9,903 feet (measured depth) in the Hemi Springs Unit 3 well (see sidebar to this story).

But after drilling Pioneer said Hailstorm 1 was a bust (see March 12 edition of Petroleum News). Additional information about the well is confidential, the division said.

Existing seismic data

Alaskan Crude already has some seismic data which it obtained under the terms of the Charter for the Development of the Alaska North Slope, an agreement resulting from the settlement between the State of Alaska, BP and ARCO, following BP’s takeover of ARCO in 1999-2000 and Phillips’ purchase of ARCO’s Alaska assets. The purpose of the charter was to help small independents to gain fair access to North Slope facilities and pipelines.

Alaskan Crude hired two companies to “interpret (the seismic) and that was the basis for the formation of the unit,” Webb said.

But the seismic consisted of only a half dozen lines that crossed the unit, Webb said, which is the reason the exploration plan for Arctic Fortitude includes shooting additional seismic.

Alaskan Crude might shoot seismic over the unit before the required date of Nov. 1, 2009, depending on what it finds in the Burglin well, Webb said.

Getting seismic under charter difficult

In addition to financing and oil spill plan challenges, Webb said Alaskan Crude initially ran into some significant hurdles obtaining seismic data under the Charter for the Development of the Alaska North Slope.

Under the terms of the charter, seismic data are available at reproduction cost to anyone with a valid need for the data. However, Alaskan Crude had a tough time finding someone who could release the data, Webb said.

“It took over a year to get that data — it wasn’t that easy to get,” Webb said. “… It pushed us right up to the limit where the unit was going to expire.”

But, having reached the point of gaining approval for Arctic Fortitude, Webb feels particularly pleased that a tiny independent oil company like Alaskan Crude has established a foothold on the North Slope, long the domain of much bigger oil companies.

“This is going to send a message out to all the independents that the state is saying ‘hey we’re open for business — you can come in now,’” Webb said.

If Alaskan Crude finds an economic accumulation of oil or gas, connecting to the existing North Slope infrastructure should prove straightforward. The trans-Alaska pipeline passes through the middle of the unit and the Haul Road is just four miles to the east, Webb said.

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Previous exploration near Arctic Fortitude

In its findings and decisions document for the new Arctic Fortitude unit, Alaska’s Division of Oil and Gas outlined the results from several exploration wells that have been drilled near the unit.

• In 1969 the Mobil Hemi State 3-09-11 well (section 3, township 9 north, range 11 east, Umiat Meridian), approximately 12 miles to the west of the Arctic Fortitude unit, reached a true vertical depth of 6,032 feet, bottoming in the Middle Cretaceous Brookian section. The well only yielded 13 feet of core from the lower Brookian, despite attempts at recovering core from both the West Sak and Brookian sections. Conventional sidewall cores were taken in the West Sak interval, recovering oil-saturated sands with fair to good shows. The well was plugged and abandoned without testing.

• In 1969 the ARCO Toolik Fed No. 2 well (Sec. 5, T8N, R12E, U.M.), approximately 13 miles southwest of the Arctic Fortitude unit, reached a true vertical depth of 8,700 feet, bottoming in the Jurassic Kingak formation. The well penetrated approximately 10 feet of Kuparuk C sandstone. Thirty-one sidewall cores were recovered between the intervals of 2,330 feet and 7,698 feet, and mud log shows were noted in the West Sak and Brookian intervals. No commercial accumulation of hydrocarbons was determined present in the well.

• In 1969 the ARCO Put River State No. 1 well (Sec. 7, T10N, R14E, U.M.), approximately 2.5 miles north of the Arctic Fortitude unit within the Prudhoe Bay unit, reached a true vertical depth of 9,903 feet, penetrating Jurassic-Triassic sandstone at 8,901 feet and Permo-Pennsylvanian limestone at 8,982 feet. Thirty-four sidewall cores were recovered from 7,300 feet to 9,880 feet. Five conventional cores were recovered from 9,000 feet to 9,212 feet; these cores showed oil and gas within sandstone, having a porosity of 20.2 percent to 23.1 percent. A strong gas show was encountered at 9,095 feet and black oil with a 12.8 degree API and 80 percent water was encountered at 9,075 feet. The well was initially suspended, but later plugged and abandoned.

• In 1969 the Mobil/Sohio Hurl State 5-10-13 well (Sec. 5, T10N, R13E, U.M.), approximately 5 miles northwest of the Arctic Fortitude unit within the Prudhoe Bay unit, was drilled to a true vertical depth of 11,420 feet. During drilling operations, the 3.5-inch drill pipe became stuck in the hole at 8,954 feet and twisted off. The drillers later recovered the pipe and cased the well. Four tight hole tests were evaluated between 8,843 feet and 9,069 feet. Two production tests were completed in Sadlerochit sands from 8,960 feet to 9,078 feet. The well flowed clean 24.4 degree API oil at a rate of 1,980 barrels per day, with medium gas flows, with a maximum temperature of 230 F at 8,955 feet. The well was left completed for production in November 1969. Subsequently, the well was plugged and abandoned because the casing collapsed.

• In 1970 the Placid et al PB State No. 1 well (Sec. 3, T10N, R13E, U.M.), approximately 3 miles northwest of the Arctic Fortitude unit, reached a true vertical depth of 11,400 feet. Well cores and logs showed the Cretaceous at 3,907 feet, the Jurassic at 7,792 feet, the Permo-Triassic at 8,932 feet, the Pennsylvanian at 9,900 feet and the Mississippian at 10,696 feet. Drill stem tests were performed at several intervals showing heavy 10.7 degree API oil at 4,063 feet having a strong blow to 9,216 feet with oil shows and intermediate strong blows. Perforations from 8,960 feet to 8,992 feet and 9,008 feet to 9,058 feet yielded a clean oil with an API of 22.8 to 23.3 at a maximum rate of 2,030 barrels per day. The perforations also produced 788 thousand cubic feet per day of gas at 1,030 pounds per square inch. The well was suspended in July 1970 for future production. However, in 1986 ARCO plugged and abandoned the well, stating the well was not needed for unit production.

• In 1972 the Ashland West Channel No. 1-3 (Sec. 3, T9N, R15E, U.M.), approximately 4 miles east of the Arctic Fortitude unit, reached a true vertical depth of 9,880 feet. The well encountered gas shows with no visible oil from 9,160 feet to 9,235 feet. From 9,235 feet to 9,275 feet the well showed some signs of oil in limestone and sandstone with poor porosity. The well was plugged and abandoned.

• In 1975 the Getty State No. 1 (Sec. 2, T10N, R13E, U.M.), approximately 3 miles north of the Arctic Fortitude unit, reached a true vertical depth of 9,160 feet. Well cores and logs showed the Cretaceous at 4,108 feet, the Seabee at 5,962 feet, the Sag River at 8,843 feet, the Shublik at 8,861 feet and the Sadlerochit at 8,940 feet. Sandstone cores with good oil shows were recovered from 8,928 feet to 9,149 feet. The oil-water contact was encountered at 9,078 feet. The well was completed and suspended as a producible oil well in January 1976. In 1980, Arco recompleted the well as a Prudhoe Bay unit observation well.

• In 1984 the ARCO Hemi Springs State No. 1 well (Sec. 12, T10N, R11E, U.M.), approximately 10 miles to the northwest of the Arctic Fortitude unit, reached a true vertical depth of 10,370 feet, bottoming in the Lisburne formation. The primary exploration objectives of the well were West Sak sands and the Sadlerochit group, with the Lisburne as a secondary objective. The West Sak sands were cored between the depths of 4,527 feet and 4,856 feet, and 30 sidewall cores were also taken. The West Sak interval had marginal shows with an apparent oil-water contact within one of the upper Schrader Bluff sands. ARCO conducted two production tests in the lower sands of the West Sak Interval and both recovered water. The Ivishak tested wet. Log data suggests that the Lisburne is also wet. The Kuparuk C sands tested some gas and oil.

• In 1984 the HG&G Hemi Springs Sag River No. 1 well (Sec. 14, T9N, R14E, U.M.) approximately 2.5 miles south of the Arctic Fortitude unit penetrated the Ivishak formation. Twenty-seven sidewall cores were recovered between the depths of 6,080 fee