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Vol. 18, No. 37 Week of September 15, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

Testing new Arctic regime

This winter was the same as last winter for Pioneer Natural Resources, but better.

After the Texas-based independent reported good results last year from a fracture-stimulation program at its Oooguruk unit and an exploration campaign in the associated Torok formation, the company expanded both efforts this year, with even better results.

Of the four horizontal development wells Pioneer completed from Oooguruk Island this past winter, the two brought online to date have so far hit peak production rates of 3,500 and 3,000 gross barrels of oil per day, respectively. And an appraisal well into the Torok has led Pioneer to increase its estimate for the Nuna development to between 75 million and 100 million barrels of oil, up from a previous estimate of some 50 million barrels.

The successful wells have yet to impact overall production.

Pioneer produced some 4,000 net barrels of oil per day in Alaska in the first quarter, level year-over-year and quarter-over-quarter. Pioneer owns a 70 percent working interest in the Oooguruk unit. The Italian major Eni Petroleum owns the remaining 30 percent.

Companywide, Pioneer produced 171,000 bpd in the quarter, up 3.6 percent quarter-over-quarter and 16.3 percent year-over-year on growth from the Permian and Eagle Ford.

Also in the quarter, Pioneer earned $12 million net in Alaska production tax credits.

Still climbing

The winter program this year included development and exploration components.

Using a “mechanical diversion” fracturing system borrowed from its Eagle Ford shale operations, Pioneer completed a well into the Nuiqsut formation in early 2012. The well produced at an initial rate of 4,000 bpd and produced some 685,000 barrels cumulatively over its first year, making it among the best performing wells at the offshore field northwest of the Kuparuk River unit. Because of those results, Pioneer used the technique on four horizontal wells this winter, three into the Nuiqsut and a fourth into the Torok.

Because the production rates of the two newer wells are still climbing, according to Pioneer, it is hard to accurately compare the early results to the 2012 well, or to the average Oooguruk well. Pioneer expects to bring the two remaining wells online in May.

The four wells completed this winter are unlikely to boost Oooguruk production rates significantly in the second quarter, though, according to Pioneer, because of 10 days to two weeks of planned downtime related to third-party processing scheduled for late June.

Nuna test stymied

Concurrent to its development efforts, Pioneer also appraised its Nuna development.

Pioneer planned to conduct a production test of Nuna No. 2 this winter, but a mechanical problem would have required the company to remobilize its rig to complete the test and the end of the drilling season made the work unfeasible this year, the company said. Pioneer drilled the well from an onshore pad to an offshore target. Still, Nuna No. 2 well logs confirmed the “high quality reservoir rocks” of the Torok, according to Pioneer.

Even without the production test, the results gave Pioneer enough confidence to increase its estimate of the prospect by 50 to 100 percent, and CFO Tim Dove said the potential exists to add additional resources to the south, although the estimates are firming up.

In addition to drilling the Nuna No. 2 appraisal well this winter, Pioneer also retested the original Nuna No. 1 exploration well that it drilled last year. The test yielded a facility-constrained rate of 2,800 bpd gross, up from an initial production rate of some 2,000 bpd.

Is Oooguruk up for sale?

With the season completed, Pioneer CEO Scott Sheffield said the Alaska team would spend the next three months crafting its 2014 program and deciding whether to sanction a Nuna development (a decision it must make by June 30, 2014, to meet state deadlines).

Asked whether the results of its recently completed winter program on top of revisions to the Alaska fiscal regime had made Pioneer more like to develop Oooguruk through its full field liThe Canadian government is seeking a fresh start for oil and natural gas interest in the Arctic region as the industry awaits a change in northern jurisdiction over natural resources.

Against a recent backdrop of waning activity, federal Aboriginal Affairs and Northern Development Minister Bernard Valcourt has issued a call for nominations for frontier lands within the Inuvialuit Settlement Region in the Beaufort Sea and Mackenzie Delta areas of the Northwest Territories.

Depending on the response by the Sept. 24 deadline, Valcourt may launch a call for bids for exploration licenses in October.

It will be the last bidding round before responsibility for public lands, water and resource management in the NWT is scheduled to pass from the federal to the territorial government on April 1, 2014.

At that time, interests issued in the onshore will also be under the administration and control of the NWT government.

Apart from giving the NWT the chance to benefit directly from resource development, it is hoped the devolution will streamline approvals of projects.

Waning interest

Interest in the Beaufort Sea-Mackenzie Delta has waned in recent years, with only a privately held United Kingdom company participating in a call for bids in the last five years.

Franklin Petroleum made a work commitment in the 2011-12 round of C$7.5 million for 100 percent control of 2.24 million acres.

Prior to that, BP Exploration submitted a record C$1.18 billion in work commitments in 2008 for a 553,000-acre Beaufort parcel and is working jointly with a partnership of Imperial Oil and ExxonMobil on exploration plans.

The joint venture is expected to file a project description and environmental impact statement with regulators later this year.

Imperial has said that a decision to proceed with an exploration drilling program in the Beaufort would require a “significant financial commitment” by the partners.

At best, industry observers believe that drilling is at least three years away.

The bleak outlook for the region was reinforced earlier this year when five exploration licenses in the Mackenzie Delta were surrendered by MGM Energy, a Calgary-based junior explorer that has been the only company to engage in drilling over a prolonged period.

—Gary Park

fe or to sell the field, Sheffield said, “Right now we are evaluating the entire project and so we will be making those decisions over the next several months.”

When asked a similar question last May, after the 2012 program but before the new tax code, Sheffield said, “If the team up there can show us they have huge potential to grow production and frac several more Nuiqsut wells and look at some Torok, then we’ll look at keeping and keep growing it. And so that’s the key: Do we have enough upside on growth to able to reinvest the cash flow and grow the asset. And we love growing assets.”



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