Caelus Energy LLC is part of a new trend in Alaska oil and gas development.
Traditionally, new entrants to the state would acquire acreage in lease sales, shoot a seismic campaign, drill exploration wells, sanction development, incrementally expand into satellites and eventually conduct a series of enhanced recovery programs.
But in the past few years, privately held independents like Savant Alaska LLC, Hilcorp Alaska LLC and Miller Energy Resources Inc. have acquired oil and gas fields already in production. In addition to finding new fields, they aim to rejuvenate existing operations.
When Dallas-based Caelus Energy acquired the Alaska assets of Pioneer Natural Resources Inc. in 2014, it not only acquired existing production at the Oooguruk unit on the North Slope but also existing producers - the entire staff of the former operator.
The acquisition gave Caelus a steady base of production - some 15,400 barrels per day in July 2014, according to the Alaska Oil and Gas Conservation Commission - and an experienced staff. “It’s obviously a harsh environment,” Caelus Energy President and CEO Jim Musselman told Petroleum News in April 2014, after his company closed on the acquisition of the Alaska assets. “The North Slope is a very particular place to work. It’s important for us to have a good, solid group of people … and we think we have that.”
Who is Caelus?While Caelus Energy is a relatively new entity, the principals of the company have touted their experience leading two other small independents to various forms of success.
In the 1990s, Musselman and various colleagues acquired a struggling independent called Triton Energy. They oversaw discoveries in Colombia, Southeast Asia and offshore West Africa. Triton brought the West Africa discovery online within 18 months, according to Musselman, which allowed investors to later sell the company to Amerada Hess.
Musselman and his investors later founded the independent Kosmos Energy, which made a discovery offshore Ghana that propelled the company to a public offering in 2011.
Instead of staying with the public company, Musselman struck out on another privately funded venture by forming Caelus Energy. “If you’re not nervous and a little bit worried or a bit scared of doing business in hostile places, you’re done,” he said in October 2013, when Pioneer Natural Resources announced plans to sell its Alaska subsidiary to Caelus Energy for $550 million. In March 2014, the parties lowered the sale price to some $300 million. The amendment cleared the path for the two sides to close in April 2014.
At the October announcement, Musselman said his company would spend at least $300 million on Oooguruk. The first order of business, Musselman said, would be to pursue the proposed Nuna development, a new onshore drilling pad to target offshore resources too far to reach from the existing Oooguruk gravel island. But, Musselman added, the company hoped to raise more than $1 billion for future development work and saw the potential to spend as much as $1.5 billion in Alaska over a five-to-six-year-period.
To meet those funding goals, Caelus formed a strategic partnership with the international investment company Apollo Global Management in April 2014. The partnership provides a source of funds for the near term and an avenue to access debt financing for the future.
“We feel very comfortable that we can do several billion dollars-worth of development and have the requisite equity and debt financing necessary to go forward with some good-sized developments on the North Slope,” Musselman told Petroleum News at the time.
What Caelus inheritedPhysically, the Oooguruk unit includes a six-acre gravel island in the nearshore waters of Harrison Bay and a subsea flowline bundle connecting to an onshore tie-in pad, which delivers Oooguruk production to the Kuparuk River unit for processing and delivery.
During its tenure, Pioneer Natural Resources established three participating areas at the unit, each targeting a different horizon: the Nuiqsut, the Kuparuk and the Torok.
Through the end of August 2014, Pioneer Natural Resources had drilled 37 wells within the Oooguruk unit - 21 in the Nuiqsut, six in the Kuparuk, four in the Torok, five exploration and appraisal wells outside the participating areas and one disposal well.
According to a plan of development filed with the state Division of Oil and Gas in June 2014, Caelus plans to drill five wells in the Nuiqsut pool and recomplete five as-yet-to-be-decided wells at the unit during the current year, which runs through August 2015.
The Nuiqsut poolAs those numbers suggest, development to date has been focused most heavily on the Nuiqsut pool, which is both the largest and the deepest of the three pools at the unit.
In the year ending August 2014, Pioneer drilled five horizontal wells into the Nuiqsut pool - four producers and one injector. The company completed the four production wells - ODSN-02, ODSN-04, ODSN-28 and ODSN-48 - using mechanical diversion, which stimulates more of a formation than the dynamic diversion method Pioneer had originally used on Oooguruk wells. The new production wells had “some of the highest initial flow rates seen to rate” from the Nuiqsut participating area, according to the companies. Pioneer also performed a second fracture stimulation on ODSN-24, although production is on hold while the company cleans out the well using a coiled tubing system.
Pioneer also stimulated five injection wells - ODSN-15i, ODSN-26i, ODSN-27i, ODSN-32i and ODSN 34i - to allow them to better match the higher production rates from the mechanically diverted production wells. And the company drilled a new injector, ODSN-03i, which will support the new ODSN-02 and ODSN-04 production wells. Those three wells are in the Ivik fault block at the northern end of the unit.
As part of a nine-well workover campaign during the year, Pioneer Natural Resources replaced failed electric submersible pumps to the ODSN-31 and ODSN-16 production wells, added new electric submersible pumps to the ODSN-01 and ODSN-25 production wells and cleared sand from the laterals of the ODSN-18 and ODSN-37 production wells.
Alongside the busy drilling and workover campaigns, Pioneer Natural Resources conducted an enhanced recovery effort in the Nuiqsut pool. The effort included expanding a waterflood program and continuing an immiscible gas injection program.
Caelus plans to drill four fracture stimulated production wells and one injection well.
The producer ODSN-06 will be in the southwest of the unit, in acreage recently added to the unit near the existing ODSN-48 well. The new ODSN-29 and ODSN-31 wells will be sidetracks of existing wells. The new ODSN-08 will “appraise the southern well row.”
The injection well - ODSN-19i - will support the producers ODSN-01 and ODSN-24. Caelus also intends to bring the previously drilled ODSN-03i injection well online in the coming year to support the ODSN-02 and ODSN-04 production wells in the Nuiqsut.
The AOGCC issued a permit on June 16 for Caelus to drill an “ODSN-03” service well and a permit on Sept. 3 for Caelus to drill an “ODSN-43” production well.
The Kuparuk poolCaelus is currently producing from three wells in the Kuparuk pool.
Pioneer Natural Resources previously shut-in ODSK-33 - the first and, for a while, most dominant well into the pool - because production exceeded 95 percent water.
But the Kuparuk pool continues to see “strong” results from the horizontal production wells ODSK-14 and ODSK-41, according to Caelus. ODSK-41 had “minimal water production.” But ODSK-14 experienced breakthrough within the past year, the term describing when isolated injection fluids enter the wellbore. Pioneer Natural Resources previously launched and Caelus continues to monitor a chemical tracer program conducted on two injection wells - ODSK-38i and ODSK-35Ai. So far, the companies have seen “slight tracer return” in water samples taken from associated production wells.
Pioneer replaced a failed electric submersible pump in the ODSK-41 production well.
The Torok poolWhile Pioneer Natural Resources was developing the Nuiqsut and Kuparuk pools, it was simultaneously collecting information on a pool in the shallower Torok formation.
The data collection convinced the company to target the Torok specifically.
Caelus is currently developing the Torok formation from the ODST45A and ODST-39 production wells. A third production well, ODST-47, is shut-in until future workover activities can repair a mechanical failure caused during completion work back in 2013.
The horizontal injection well supporting those producers - ODST-46i - “continues to perform well,” but Pioneer Natural Resources shut-in the well for an “extended period” while it drilled the nearby ODSN-48 into the Nuiqsut to avoid contact between the wells, according to Caelus. The ODST-46i injection well is, in some sense, a keystone for developing the Torok participating area, according to the companies, and future Torok development will depend on “injection performance and offset producer responses.”
Pioneer replaced a failed electric submersible pump in the ODSK-45A production well.
In addition to drilling and workover projects, Pioneer Natural Resources started an enhanced recovery program in the Torok, injecting seawater and immiscible gas.
In the coming year, Caelus plans to continue its enhanced recovery program in the Torok participating area. The company said gas injection for enhanced recovery is “desirable” in both the Nuiqsut and Torok participating areas “but limited volumes are available and it is subject to the ability to acquire an adequate gas supply from a third party.”
The Nuna developmentThe largest potential plans for the coming year involve the proposed Nuna development.
Pioneer Natural Resources drilled two wells to appraise the potential satellite in the southern reaches of the unit. Now Caelus must decide whether to sanction development.
For the coming year, Caelus plans to “integrate the results from drilling, engineering and permitting into determining the commercial viability of the Nuna onshore development.”
After analyzing data gathered from deeper wells, Pioneer Natural Resources specifically targeted the Torok formation in 2010 and proposed the Nuna development later that year to develop segments of the formation too far to reach from the existing gravel island. As currently envisioned, the project would use extending-reach drilling from an onshore site.
The initial proposal called for as many as two onshore drilling pads and the potential for a standalone production facility. The unit currently utilizes Kuparuk River unit facilities.
In early 2012, Pioneer Natural Resources drilled the Sikumi No. 1 exploration well from an offshore ice island and the directional Nuna No. 1 exploration well from an onshore ice pad. A “deep test” of the Ivishak at Sikumi No. 1 was “basically non-commercial,” the company said, but Nuna No. 1 yielded a 50 million barrel discovery from the Torok.
In early 2013, Pioneer Natural Resources drilled the Nuna No. 2 appraisal well and later increased its estimate for the Torok to a range of 75 million to 100 million barrels.
As an early step toward sanctioning Nuna, Pioneer proposed a project in August 2013 to expand operations, improve seawater delivery and accommodate future Nuna facilities.
The expansion program included projects for both Oooguruk Island and the onshore tie-in pad. The offshore expansion was meant to improve transportation into the island. The onshore expansion was meant to accommodate Nuna facilities. Pioneer Natural Resources undertook a range of projects at the tie-in pad in June 2014, including upgrades to the waste heat recovery system, production separator, electrical systems, oil pigging systems and repair and replacement of various valves throughout the facilities.
Before handing Oooguruk over to Caelus, Pioneer Natural Resources also continued early engineering work on roads, pads, pipelines and facilities needed for the Nuna project.
The state also approved several small unit expansions that would assist the project.
In May 2014, Musselman told Petroleum News that Caelus planned to begin work on Nuna in late 2014 with the goal of bringing the satellite into production by the third quarter of 2016. He estimated the project would cost some $1.4 billion, with $550 million to build new onshore facilities and another $800 million to $900 million for drilling.
Industry trendsOooguruk might be the defining Alaska oil field of the past 20 years.
It symbolizes three major trends.
The first is the introduction of independent oil companies to the North Slope.
ARCO Alaska Inc. discovered what is now known as the Oooguruk unit in 1992 but never sanctioned development. The independent Armstrong Oil & Gas Inc. performed some delineation activities at the field in the early 2000s before partnering with Pioneer Natural Resources and then selling the unit outright to its wealthier partner. The partnership was one of many Armstrong has engineered during its time in Alaska.
After an accelerated delineation campaign, Pioneer brought the unit into production in 2008 and became the first independent operator in the history of the North Slope.
The second trend is the growth of unconventional oil in the Lower 48.
Pioneer invested considerably in bringing technological advancements at Oooguruk, but Alaska proved to be no match for the opportunities available in the Lower 48.
Speaking at Meet Alaska in January 2011, Pioneer Executive Vice President for Domestic Operations Jay Still differentiated between Alaska and the Lower 48. Of the nearly one dozen North Slope exploration wells that the company helped drill between 2003 and 2007, “We did not have a dry hole - every well we found the hydrocarbons. We just didn’t find rock that we could make production in commercial quantities, he said.
While the Lower 48 had “a thousand-times worse rock than what’s on the North Slope,” the prospects were easier to develop. If the Alaska wells could magically be transported to the Lower 48, “we would be all over them,” Still said. “There would be no question that the thing could be developed, with horizontal wells, the fracture technology.”
Given its lack of magical transportation abilities, Pioneer sold Oooguruk to Caelus, which marks the third trend: the tendency of smaller companies to pursue producing fields.