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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: Chevron: working across the state

White Hills exploration to begin this winter, company continues to look at Cook Inlet opportunities

Kristen Nelson

Petroleum News

Chevron, an oil and gas explorer and producer in Alaska for decades, will begin exploration drilling this winter at its White Hills prospect in the Brooks Range foothills on the southern edge of the North Slope. This marks the first time the company — or Union Oil Company of California, which Chevron acquired in 2005 — has explored on the North Slope since the early 1990s.

Chevron’s Alaska general manager, John Zager, told Petroleum News in mid-September 2007 that Chevron’s “overall exploration plan … is commensurate with our commitment to Alaska.” After the Chevron purchase, there was speculation that the company might sell off its Alaska properties, but in 2006 Chevron announced that it would keep Unocal’s employees and assets in Alaska.

Zager said “exploration is a key part of our plans” because Chevron intends “to grow the business” and has “made a commitment to be in Alaska.”

While that commitment “involves a significant amount of development work” there is “also an exploration component,” he said.

“Over the next couple of years we’ll have more exploration going on than we have had in a number of years here in the state.”

“We haven’t operated along the North Slope since the early ‘90s, so this is a significant move for us and obviously we’re hopeful it will be successful and lead to many more opportunities up there.”

Chevron holds 906,136 net acres of oil and gas leases in Alaska.

White Hills prospect

Chevron has been talking about exploration drilling at White Hills — Zager told the Resource Development Council in November 2006 that the company was “working hard on getting that ready and plan to have a rig out there probably about 12-14 months” from now.

Petroleum News reported in July 2007 that Chevron had permitted a number of While Hills locations and told regulators it planned to drill up to six wells in its first exploration drilling season at the While Hills prospect, with the potential for additional wells in subsequent years.

Chevron described the plan to the Alaska Department of Environmental Conservation as “a regional, multi-year onshore oil and gas exploration drilling program during the winter months on the North Slope” at its Brooks Range Foothills White Hills prospect. White Hills is west of the Sagavanirktok River and east of the Colville River. Mobilization will begin with a staging area and camp at the Franklin Bluffs pad, Milepost 39.6 along the Dalton Highway.

The new North Slope rig that will drill at White Hills, Nabors 106E, will drill first at Happy Valley on the Kenai Peninsula. Zager said the 106E was being set up at Happy Valley in mid-September and will “drill two new wells off what we’re calling the B pad (at Happy Valley), which is a western extension from the original A pad.”

And when will work begin on the North Slope? As soon as conditions permit and Chevron has permits in place, Zager said. The rig is expected to be taken to the slope in early December and spud at While Hills as soon as snow and freezeup allow.

2-D seismic last winter

Unocal began White Hills tract acquisition in 2001 and Chevron added 48 tracts in the March 2006 state areawide lease sale. The While Hills acreage includes Unocal’s 1994 Amethyst well as well as BP’s 1991 Malguk 1 well.

Zager said he couldn’t discuss Chevron’s target at White Hills, but former Alaska Division of Oil and Gas Director Mark Myers told Petroleum News in 2006 that White Hills is close to the 1966 Susie well that Richfield drilled just before Prudhoe Bay was discovered. That well had oil shows and Myers said while the well was unsuccessful “there is still significant interest in that area for oil.”

“The oil-stained outcrops … around Sagwon Bluffs illustrate the area contains oil,” Myers said. Targets at While Hills would include Cretaceous sands, including the Kuparuk River formation, he said.

Division of Oil and Gas geologist Paul Decker told Petroleum News in 2006 that both the Amethyst and Malguk wells penetrated thick Upper Cretaceous deepwater turbidite sands with good oil and gas shows and said Phillips Petroleum’s 2002 Heavenly 1 well just west of White Hills had the same Cretaceous interval and that the same sands may extend within the Chevron acreage.

Chevron acquired 2-D seismic on the North Slope last winter.

Stump Lake well in ‘08

While Chevron has production from working interest ownership in North Slope fields, its operated production is from Cook Inlet.

Zager said that the company has been “active onshore for the last few years with gas exploration” in the Cook Inlet basin — resulting in “at least two discoveries, one with Marathon at Ninilchik and the other one at Happy Valley.”

“Our effort in the next year or two onshore will primarily be — I’d call it more in the exploitation realm,” he said.

Drilling will be at Happy Valley before Rig 106E goes to White Hills.

“And then on the west side, we have plans for next summer to drill a well at Stump Lake.” That will be the first well the company has drilled on the west side in a number of years, he said.

“That is probably more of an exploitation well than a true exploration. It’s not a new field wildcat,” Zager said.

He said Chevron’s intention is to “use the same rig that we hope to be using with our partners at Beluga River” next summer.

Stump Lake is gas, he said, and is one of four west side Chevron fields — all gas — including Stump Lake, Pretty Creek, Ivan River and Lewis River. Chevron holds 100 percent working interest in all four, Zager said. Of the four, Alaska Oil and Gas Conservation Commission records show current production from Ivan River and Pretty Creek. Chevron also has gas storage at Pretty Creek.

The Stump Lake well is based on a “new geological interpretation,” Zager said, “… reworking the data and coming up with a new interpretation.”

Chevron has just completed another storage well at Swanson River, “so we’ve got a little more capacity for this winter.”

An undeveloped Chevron find is the Red well, which has been discussed as a possible gas source for the southern Kenai Peninsula.

Kevin Tabler, Chevron’s Alaska manager of land and government affairs, said the Red 1 well flowed “at a substantial rate,” but the offset well, the Red 2, was a dry hole. “The Red 2 results coupled with our analysis of the well data on Red 1 indicate that the reservoir volume is rather small,” Tabler told Petroleum News in an October 2007 e-mail. “We will look for opportunities to work with others to hook the well up as soon as a commercial project comes together,” he said.

Offshore work oil-related

Most of Chevron’s offshore Cook Inlet work is oil related, Zager said, although “we will soon be drilling” a gas development well on the Steelhead platform.

As far as offshore exploration work goes, “probably mostly work at the Monopod will be considered exploitation-type work, but we’re doing significant development at Granite Point and at Trading Bay unit and Trading Bay field.”

“As far as exploration, the only real what I call true exploration well we have planned right now is off Anna in Granite Point field. That would be a gas prospect.”

Zager talked about this gas prospect at the Resource Development Council in November 2006. He said Granite Point is a big structure, a four-way closure, and is in a good neighborhood for gas with the McArthur River, Beluga River and North Cook Inlet fields in the area. He said Granite Point “has never really been drilled on top as a gas prospect,” and is risky for gas because it’s shallower than some of the other fields.

That well could be drilled around the second quarter of 2008, Zager told Petroleum News in September 2007. He said Rig 428, a Chevron-owned rig, is being moved out to Anna now. “It’ll be set up and start drilling off Anna probably by the first of December and we’ll have a couple of oil wells that we’ll drill first,” development oil wells, he said.

Most of Chevron’s Cook Inlet activity will be development drilling, he said, because the object is an “increase in near-term production.”

With gas “a more and more precious commodity” in Cook Inlet, “we’re focused on working to meet our ongoing obligations to our gas markets,” Zager said.

No Jurassic in 2008

Zager said in 2006 that Chevron is considering drilling deep in Cook Inlet to test the pre-Tertiary Jurassic.

Tabler told Petroleum News that test will not occur in 2008, but “we continue to plan for a Jurassic test in the McArthur River field in the next couple of years.” He said that test “will need to compete to secure exploration funding in Chevron’s global exploration portfolio.”

The deepest vertical depth of a Cook Inlet basin well is some 12,000 feet. Commissioner Dan Seamount of the Alaska Oil and Gas Conservation Commission said companies will have to drill another 5,000 feet below known reservoirs to test the deeper sands.

Seamount told Alaska legislators in early 2005 that there has been relatively little exploration drilling in Cook Inlet compared with oil regions elsewhere in the United States, and said with potential deeper undiscovered oil existing platforms could play a role in exploration.

The U.S. Geological Survey has estimated that only 4 percent of the oil theoretically generated from Cook Inlet source rock has been identified.

Referring to existing platforms, Seamount told legislators “There’s still a good chance that a lot of that 96 percent is still under the drill bit.”

He said there are many known, untested Tertiary prospects accessible from the platforms and said fault blocks, some of which lie right under the platforms, form fault traps that could contain oil.

“We could explore untested fault blocks and now, with new technologies and extended reach drilling, there are a lot of other identified prospects within reach,” Seamount said.

He thinks there is oil in the Jurassic strata under the platforms, below Tertiary rocks that form the reservoirs for all of the Cook Inlet oil and gas fields. Rocks of the middle Jurassic Tuxedni group sourced Cook Inlet oil and that oil must have migrated through or alongside potential reservoir sandstones that are late Jurassic in age and known to exist under Cook Inlet.

“There are very thick sands in the Jurassic,” Seamount told legislators. “The oil would have had to have touched the sandstone within the Jurassic before it got up into the Tertiary reservoirs that have been exploited to date.”

Chevron spokeswoman Roxanne Sinz told Petroleum News in November 2006 that there had been a small amount of Jurassic production at the Trading Bay unit in the past. Testing the Jurassic from one or more of the unit’s platforms is an option “being considered along with a wide spectrum of oil development opportunities in Cook Inlet, including Jurassic. However, significant additional technical work must be completed before we can rank, prioritize and schedule any specific drilling activity to further evaluate these types of targets,” Sinz said in 2006.

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How to attract investment to Alaska

Here is Chevron’s response to what the State of Alaska and/or federal governments can do to attract more oil and gas company investment to Alaska.

The government needs to provide three things to attract more investment in Alaska:

1) Provide access to land — the State does a very good job through the areawide leasing program;

2) Provide a reasonable permitting environment. Steps have been taken, but there is more to do to cut down the costs and possible delays;

3) Provide a stable and reasonable tax environment. It is very difficult for any company to plan its business if taxes are changing annually.

Recognize that Alaska is an expensive and high-risk place to do business. In order to attract more capital, Alaska must offer terms that recognize, and in some manner accommodate, some of those risks. The State will not be successful in attracting more capital and getting more production if the industry is continually forced to take more risks and accept increased costs through higher taxes.

Chevron holds 906,136 net oil and gas acres in Alaska.