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Vol. 14, No. 32 Week of August 09, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Oooguruk field performs

Oil production has exceeded Pioneer’s expectations; no Cosmo drilling in sight

Alan Bailey

Petroleum News

Good and getting better seemed to be the tone in comments about Pioneer Natural Resource’s Beaufort Sea Oooguruk oil field, offshore Alaska’s North Slope, during the company’s earnings conference call on Aug. 5.

“Alaska will be over performing … going into the second half of 2009 and going into 2010,” said Scott Sheffield, Pioneer’s chairman and chief executive officer. Oooguruk is Pioneer’s only producing field in Alaska.

“We had a great deal of success in our summer drilling campaign and we’re just starting to see the effect on production,” said President and Chief Operating Officer Timothy Dove.

Originally slated as a 70 million- to 90 million-barrel field, Oooguruk showed its mettle not long after its June 2008 startup, with higher than expected well flow rates leading to a February 2009 statement by Pioneer that the company was raising estimates of recoverable oil equivalent to between 120 million and 150 million barrels. And with only 10 million of those barrels booked for financial reporting, the field could contribute significantly to Pioneer’s future oil reserves replacement figures, Dove said.

Nuiqsut wells

The 2008 startup of the field began by tapping oil from the Kuparuk interval, one of two production zones within the field. And, with the Kuparuk proving highly productive, the other zone, the Nuiqsut also came on stream. Pioneer considers the Nuiqsut to be the main production horizon and is in the process of completing five horizontal wells in it — three producers and two water injectors, Sheffield said.

A production test on the first of the new injector wells, a test designed to provide baseline data on unstimulated production, showed a flow rate of 1,000 barrels per day, Dove said. The company then found that fracturing of its first two stimulated production wells could increase flow rates by multiples of perhaps two or three.

“That’s what gets you to a combined 5,400 bpd initial production for those two wells,” Dove said.

And with current gross production of about 10,000 bpd from the field, Pioneer anticipates an average daily production of 6,000 to 7,000 bpd from the field during the second half of 2009.

Drilling restart

Towards the end of 2008, faced with low oil and gas prices, Pioneer made drastic cuts in its North American drilling programs, to avoid building up debt levels during the worldwide financial crisis. Now, with more buoyant oil prices, and with its business protected by oil price hedging through 2011, the company is starting to move back into the business of drilling wells to grow its oil output, Sheffield said.

Reduced drilling costs as a consequence of an overall downturn in the oil industry have also played a significant role in the decision to recommence drilling.

“We’ve seen substantial reductions in well costs,” Dove said. “Current estimates would say in the Permian basin our well costs have come down over 30 percent.”

But, with natural gas prices remaining depressed, Pioneer’s new drilling will focus on oil rather than gas. In fact, almost all of the new activity will occur in the West Texas Spraberry oil field, a field that Dove characterized as “underpinning Pioneer’s growth from an oil perspective.” Pioneer anticipates contracting 12 rigs to drill as many as 250 wells in the Spraberry field in 2010.

“Alaska will continue as is,” Sheffield said, as he reviewed a drilling summary chart that indicated just one active rig in Alaska through 2010, a rig count that would appear to confirm continued development drilling at Oooguruk but to discount any new drilling in the next year and a half at the company’s Cosmopolitan prospect, off the coast of the southern Kenai Peninsula.

Pioneer is investigating the possibility of oil production from Cosmopolitan, an oil pool that has been known since 1967: In 2007 the company drilled a delineation sidetrack well in the prospect, a well that tested 400 to 500 bpd of oil. The company had planned to drill a further delineation well in 2009 but in late 2008 postponed that plan, as part of Pioneer’s general pull back of its drilling activities. Meantime the company continued to investigate the feasibility of commercial oil production, envisaging trucking the Cosmopolitan oil to the Tesoro refinery at Nikiski and producing some natural gas for the local gas market.

Paper loss

From a financial perspective, Pioneer reported a net loss of $92 million in the second quarter of 2009. However, that figure reflected an unrealized loss of $110 million, as a consequence of new mark-to-market pricing of derivatives used to hedge commodity prices and interest rates.

Stripping out this unrealized paper loss, adjusted income for the second quarter was $18 million, with a quarter-on-quarter reduction of 15 percent in lease operating expenses contributing to the company’s financial performance. Interestingly, the financial results included an after-tax credit of $55 million from ACES — Alaska’s Clear and Equitable Share petroleum production tax.



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State OKs Oooguruk participating areas

On Aug. 5 Alaska’s Division of Oil and Gas approved the Kuparuk and Nuiqsut participating areas for Pioneer Natural Resources’ Oooguruk oil field, in the Beaufort Sea offshore Alaska’s North Slope.

Oil production at Oooguruk began in June 2008, and since then oil has flowed from the Kuparuk and Nuiqsut intervals, the field’s two production zones. Approval of participating areas will facilitate equitable allocation of costs and production volumes among entities with ownership interests in the field.

Although field production started from the Kuparuk, with oil flow rates from that zone proving very robust, Pioneer has said that it considers the Nuiqsut to be the main production horizon — the company is in the process of drilling a pattern of horizontal production and water injection wells in this horizon.

And in its current plan of development for the Oooguruk unit, Pioneer says that it will use knowledge gained during development to assess “our exploitation opportunities in the acreage immediately outside our development areas and at varying horizons.”

According to the division’s participating area approval findings, the Kuparuk zone lies in lower Cretaceous Kuparuk C sandstone, a part of the Kuparuk River formation that also contains the reservoirs of the Kuparuk River field in the central North Slope. The Nuiqsut interval occurs in the Nuiqsut sandstone, a part of the Jurassic Kingak formation, which includes the reservoir interval for the Alpine field in the Colville River Delta.

—Alan Bailey