Earlier this year, as a response to persistently low crude oil prices, Caelus Natural Resources Alaska LLC reduced its workforce by 25 percent, suspended near-term drilling at the Oooguruk unit and postponed plans to develop the associated Nuna project.
Those measures followed nearly a decade of growth and stability at the North Slope field.
As of mid-June 2016, Caelus and its predecessor Pioneer Natural Resources Alaska Inc. had drilled 43 wells at the Oooguruk unit. A third of those had been drilled within the last three years - five each during the seventh (June 2013 to August 2014), eighth (September 2014 to August 2015) and ninth (September 2015 to August 2016) plans of development.
The advancement of the Nuna project represented a major expansion after several years of exploration, appraisal and technical review at the offshore Beaufort Sea oil field.
Caelus is not planning any drilling or workover activities at Oooguruk under the 10th plan of development, which runs through August 2017. Still, the company has expressed longer-term confidence in the health of the Oooguruk unit, saying it would resume its previous drilling program “when oil prices recover and investor confidence resumes.”
But when Petroleum News asked the company about its general outlook in August 2016, Caelus Alaska Director of Public Affairs Casey Sullivan cited oil prices, the Alaska fiscal system and the recent veto of state tax credits as reasons for pessimism: “Those (issues) all go into the final hopper for planning and none of those are looking overly optimistic,” 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.”
According to the Alaska Oil and Gas Conservation Commission, Pioneer and Caelus drilled two wells at Oooguruk in 2014, and Caelus drilled six wells in 2015 and two wells through in 2016 through September. Caelus also drilled two exploration wells this year in the remote Smith Bay, suggesting some optimism about future North Slope opportunities.
Even with the fluctuation in drilling, the Oooguruk unit continues to produce steadily. At the start of 2014, the unit had produced some 14.8 million barrels, according to the AOGCC. A year later, at the start of 2015, total production was up 4.1 million to 18.9 million barrels. By the start of this year, total production was again up 4.2 million to 23.1 million barrels. Oooguruk produced 2.5 million barrels in the first six months of this year, which means that the unit is on pace for a notable increase over 2015, if the rate holds.
Change of plans
Caelus was planning a regular development program for this year as recently as early February 2016. In light of a late 2015 request to expand the Oooguruk Nuiqsut participating area at the unit, company officials met with officials from the state Division of Oil and Gas to discuss upcoming drilling plans. The company met with state officials again in late April 2016 to review their work plan, after deciding to suspend activities.
Even though the changes at Oooguruk were announced over a short period of time in early 2016, earlier announcements in recent years suggested some economic challenges.
When Caelus was acquiring the Oooguruk unit from Pioneer in late 2013 and early 2014, the company expressed great enthusiasm about pursuing the Nuna development. The project involved building a new drilling pad and associated facilities at Oliktok Point to develop an accumulation in the Torok formation estimated to contain between 75 million and 100 million barrels. After closing on the acquisition and studying the project in greater depth, Caelus decided it would need some form of state assistance to make the $1.4 billion project economic. In return for work commitments, the state reduced the royalty rate on five leases at the development to 5 percent until Caelus recovered upfront costs.
During the first half of 2015 Caelus “fully sanctioned” the Nuna project. The company installed the Nuna Drill Site 1 drilling pad and an associated access road, continued engineering for onshore production facilities and ordered long lead items. In the second half of the year, the company commissioned a 3-D seismic survey over some 70 square miles over the region and began permitting a potential Nuna Drill Site 2 pad.
But in December 2015, Caelus decided it would postpone flowline installation and facilities fabrications by one winter. Even with the delay, the company still believed it could meet its initial deadline for bringing the project into production by late 2017. That timeline has slipped. In the 10th plan of development, Caelus said it would continue facility design, geologic and geophysical analyses and long lead procurement over the coming year, in preparation for construction in early 2018 and startup “in 2018 or later.”
Before the current drop in oil prices, Caelus investor Apollo Global Management told the company to hedge its oil price position, according to Caelus Energy Alaska Senior Vice President Pat Foley. The hedge is expected to continue through most of 2017. Although the company reduced its expenses, Foley described the move as a way to position for the future, saying that the company is planning for a 30- to 40-year field life at Oooguruk.
Smaller and faster
Oooguruk was a symbol of change on the North Slope during the 2000s.
Through the first three decades of North Slope development, international oil companies undertook several major projects in the region and demanded massive discoveries to justify their considerable investments. By the turn of the century, the maturing basin was attracting smaller companies who wanted to use the existing grid of infrastructure across the North Slope to pursue relatively “smaller” discoveries overlooked by the majors.
ARCO Alaska Inc. discovered the Oooguruk field in 1992, and independent Armstrong Oil & Gas Inc. delineated the “Northwest Kuparuk” prospect in the early 2000s. Through a series of deals, Pioneer acquired a 70 percent interest in the leases and became operator of the unit while Italian major Eni Petroleum acquired the remaining 30 percent interest.
After just five years of work, Pioneer brought the nearshore Oooguruk unit into production in June 2008, becoming the first independent producer on the North Slope.
In its nearly six years as operator, Pioneer developed three pools: the Nuiqsut, Kuparuk and Torok, from deepest to shallowest. The Nuiqsut was the largest of the three and continues to attract the majority of the investment when it comes to drilling.
In late 2013, after delineation drilling encountered a large reservoir in the southern end of the unit, and newly implemented completion techniques increased production from existing wells, Pioneer sold the Oooguruk unit to Caelus to focus on Lower 48 properties.
Caelus comes from a group of executives with a history of short-term projects, such as the acquisition, turnaround and sale of a struggling independent called Triton Energy in the 1990s and the creation and initial public offering of Kosmos Energy in 2011.
