With about eight months of Alaska operations under its belt, Caelus Natural Resources Alaska Inc. is expecting a year of expansion, Senior Vice President for Alaska Operations Pat Foley said at the Resource Development Council’s annual meeting on Nov. 18.
The Dallas-based independent is expanding the gravel island at its Oooguruk unit, starting preliminary work on the Nuna satellite to Oooguruk and conducting its first exploration work at acreage far from its existing properties. “One thing you’ll find about Caelus: We’re not going to let the grass grow under our feet,” Foley said. “Pace is everything. We’re not going to be careless, but we’re going to go as fast as we can.”
After months of negotiations and one major amendment to terms, Caelus closed on its acquisition of the Alaska assets of Pioneer Natural Resources Alaska Inc. in April 2014.
The deal may have initially looked like a bid for existing production, which was certainly sweetened when Caelus received the results of Pioneer’s final winter development season. “We had four wells that we’d fracked and we hadn’t yet brought online,” said Foley, who worked for Pioneer before moving over to Caelus, as most Pioneer employees did. “All four of those wells came on with initial production rates in excess of 5,000 barrels of oil per day. And, literally overnight, our production tripled. We went from less than 10,000 barrels per day to over 20,000 barrels per day, for a brief period of time.”
Current production is closer to 13,000 barrels per day, Foley said.
With nearly $1 billion in capital available to it through a recent partnership with Apollo Global Management, Caelus is undertaking a $500 million program this coming year.
In those activities, Caelus will be assuming a larger share of the bill than its predecessor, Pioneer Natural Resources. Even though Eni Petroleum retains its longstanding 30 percent interest in the Oooguruk unit, the minority stake only covers activities at the drilling island - not the onshore Nuna expansion project or the new exploration acreage.
Oooguruk expansion
The $500 million capital budget for the coming year is being split evenly between an expansion of the Oooguruk drilling island and construction of the Nuna facilities.
With about 80 percent of its 48 drilling slots currently filled, the Oooguruk drilling island is “nearly drilled up,” as Foley put it. An expansion effort started by Pioneer and now being completed by Caelus would increase the six-acre island by some 30 percent and add 12 bays, which would allow the company to access resources currently out of reach.
The company has state and North Slope Borough permits in hand and is waiting for U.S. Army Corps of Engineers permits before it can start work on the expansion project.
Every well drilled from the gravel island to date has also been hydraulically fractured, making Caelus the “leading frack company on the slope right now,” according to Foley.
The company used 2.4 million pounds of sand proppant on its four development wells drilled this past winter and wants to expand use of the technology in the future to find the “optimal” amount of sand for operations. The program started with Pioneer, which brought Lower 48 “mechanical diversion” hydraulic fracturing technology to the North Slope.
Preliminary Nuna work
The Nuna project is an onshore development to access offshore resources south of Oooguruk Island and too far to reach from the island with existing drilling technologies.
This winter, Caelus plans to lay gravel at the onshore site, in preparation for installing facilities and flow lines in early 2016 and starting production in the third quarter of 2016.
The first phase of development would involve 30 wells, split evenly between production and injection wells. Caelus would hydraulically fracture all wells, including injectors.
The Nuna development is targeting a 50 million to 100 million barrel pool in the Torok formation, a relatively shallow interval. “There’s a tremendous amount of oil in place,” Foley said. “And the question on Torok is: What is the recoverable portion going to be?”
That question hangs over the project, which Caelus has yet to formally sanction.
In July, Caelus told the state that it needed a reduction in royalty rates to make the project economic. The Alaska Department of Natural Resources agreed to take a 5 percent royalty on five leases (down from 12.5 and 16.667 percent) if the company sanctioned the Nuna project this year and met spending and development targets through early 2017.
The reduction is still going through public comments. Rep. Les Gara recently asked the state to leave the decision up to Governor-elect Bill Walker. The Legislative Budget & Audit Committee is scheduled to review the proposed royalty reduction on Dec. 2.
The third big source of spending this year is seismic.
Caelus is commissioning two 3-D seismic programs, including one targeting the mostly contiguous acreage the company grabbed during two recent state lease sales.
With $15 million in high bids, Caelus picked up some 322,795 acres across a broad region running from south of the Prudhoe Bay unit to south of the Point Thomson unit.
Caelus is currently keeping an eye out for partnerships, according to Foley.
