Dallas-based Pioneer Natural Resources has no immediate plans to resume its Alaska oil and gas exploration program, Timothy Dove, Pioneer’s president and chief operating officer, said on Sept. 27, 2007, during a media tour of the company’s new Beaufort Sea Oooguruk field. The last time the big independent drilled an exploration well in Alaska was two years ago, in the winter of 2005-06.
Subsidiary Pioneer Natural Resources Alaska has seen little success in its Alaska exploration to date, Dove said, so is instead focusing on earlier North Slope exploration success that led to approval of the development of the Pioneer-operated Oooguruk oil prospect in the Beaufort Sea, expected to come online in the first quarter of 2008.
“Based on the lack of success … we’re definitely slowing down our investments, until we make the next decision on where to go in terms of exploration,” Dove said.
In 2005 Pioneer brought the new Doyon-Akita truckable Arctic Fox 1 drilling rig to the North Slope, with the intention of using this portable rig to drill multiple exploration wells in each winter exploration season. During the 2005-06 season the company drilled three wells with the new rig: the Cronus No. 1 well and, jointly with ConocoPhillips, the Hailstorm No. 1 and Antigua No. 1 wells. But all three wells were unsuccessful.
In May 2007 Pioneer shared more bad news: This time from its exploration partnership in the National Petroleum Reserve-Alaska with Anadarko Petroleum and ConocoPhillips. Operated by ConocoPhillips the partnership had drilled two wells in the Noatak and Intrepid prospects in NPR-A in the winter of 2006-07, and both wells were “noncommercial,” largely because of operating so far from infrastructure. (Intrepid, south of Barrow and more than 200 miles from the Colville River unit, was the farther of the two from existing infrastructure.)
Appraisal well at CosmoBut all is not bad news.
In addition to its investment at Oooguruk, Pioneer is also spending money on its Cosmopolitan prospect, offshore in the Cook Inlet basin. On Sept. 9, 2007, it spud the Hansen 1A L1, a sidetrack, from private land on a bluff overlooking the body of water also known as Cook Inlet.
The appraisal well, which was drilled with Rowan Rig 68, is off the southwest coast of the Kenai Peninsula.
Pioneer spokesman Tadd Owens said in September that drilling and testing would take between 120 to 140 days.
“The gross recoverable resource potential is 30 to 50 million barrels of oil,” he said. If the well is successful Pioneer is looking at 12 more horizontal directional wells for development.
Former Cosmopolitan unit operator ConocoPhillips Alaska drilled a long-reach well and sidetrack, the Hansen No. 1 and Hansen No. 1A, from the onshore site in 2003, but since that time Pioneer has bought out all the working interest owners, including ConocoPhillips, Devon Energy and Forest Oil, taking over as operator of the unit. ConocoPhillips retained a small royalty share, Owens said.
The 25,000-acre state-federal unit is approximately two miles offshore. The onshore pad is six miles north of Anchor Point and one-half mile west of the Sterling Highway.
Cosmopolitan’s oil accumulation was discovered by Pennzoil in 1967 in the 12,112-foot vertical Starichkof State No. 1, drilled offshore with a jack-up rig. The company recovered 30 barrels of 20 degree API gravity oil from a drill stem test at about 6,900 feet and 21 barrels from a drill stem test at about 6,800 feet. Pennzoil reported encountering the top of the Hemlock formation at 6,745 feet. A second well, also drilled in 1967, found some gas at 4,000 feet but water in the Hemlock formation at 7,355 feet some two miles from the first well.
In 2005 Dove said. the 2003 Hansen well and sidetrack “tested at a stabilized rate of 600 to 800 barrels a day over different intervals that lasted for three to four months.”
Only drilling from onshore drilling is being considered at this time, Owens said.
Pioneer’s tentative development schedule calls for permitting in 2008, facility construction in 2008-09 and development drilling in 2009-10. If the development gets approved by Pioneer’s board, the Texas independent is hoping for first production in 2010.
Pioneer is looking at both trucking and pipeline options for Cosmopolitan oil.
Oooguruk startup closeThe man-made island for the 70 million-barrel Oooguruk oil field is in the shallow waters of Harrison Bay off Alaska’s North Slope, Nabors Rig 19-AC dominating one end of the rectangular island, while a variety of structures including workshops, storage tanks and crew accommodations is crammed into the remainder of the gravel surface. Eight thousand pale buff bags of gravel, each weighing 13,000 pounds, are stacked protectively in neat rows around the island’s perimeter.
Oooguruk will be the first producing oil field in northern Alaska operated by an independent oil company rather than one of two oil majors — BP and ConocoPhillips. Pioneer has said peak production for the Oooguruk project will be in the range of 18,000 to 20,000 barrels per day from the Kuparuk and Nuiqsut formations.
But Pioneer will not be processing the oil; ConocoPhillips will handle that at the Kuparuk River oil field.
The 12-inch pipeline that will carry oil from Oooguruk to ConocoPhillips’ onshore facilities runs through an outer 16-inch pipeline that provides secondary containment, were oil to leak from the inner pipe. The pipeline bundle also includes separate lines for water and gas injection, plus a diesel fuel line and an electrical power transmission cable for the island. The bundle is buried beneath the seabed along the 5.7-mile route to shore, from where the lines traverse above ground to facilities at Kuparuk unit well pad 3H.
At the Kuparuk well pad a separator unit will split gas from the produced liquids for metering purposes. The gas will then be recombined with the liquids before all of the produced fluids flow into a Kuparuk flowline for processing in Kuparuk field Central Processing Facility 3.
In addition to building the Oooguruk island and production facilities, Pioneer has constructed an onshore camp at Oliktok Point on the east side of Harrison Bay, to act as an equipment staging area and support base for Oooguruk construction and operation. “We’ll be drilling for about three years and we’ll have 65 or so people out on the island,” Pioneer Operations Manager Joey Hall said in September. “And once drilling is complete we’ll have a staff of about 12 people out there.”
Good fitSo, with Oooguruk moving steadily toward production, what is the significance of the new oil field for Pioneer?
Fields such as Oooguruk fit well into the portfolio of an independent oil company such as Pioneer but are too small to interest major oil companies, said Dove. Pioneer has currently booked about 900 million barrels of proven oil equivalent reserves, so an additional 70 million barrels will have a good impact, he said.
“For a company like us, it’s right in the sweet spot,” Dove said.
Dove said that Pioneer has really liked operating in Alaska because the state has welcomed independent oil companies and new investment. However, he cautioned against business problems caused by uncertainties in the state’s tax regime — although Pioneer expects to make a good investment return on the $350 million that the company is contributing to the $500 million Oooguruk project, taxation changes would change the economics of the project and could place that return at risk.
“That’s a substantial part of our capital budget for a few years,” Dove said. “That would be a drop in the bucket for a major. But if we have a poor investment outcome on that amount of money … that is a major problem for our company.”
‘Can do’ attitudePioneer’s lack of bureaucracy coupled with an innovative “can do” attitude, enabled the challenging and complex Oooguruk project to be carried out in just five years, from discovery to production, Dove said.
“I think we’ve probably set the land speed record for getting this first project done, but it still takes a lot of time,” he said.
Ken Sheffield said that Alaska service companies have proved critically important to project success — those companies have brought essential Alaska expertise that Pioneer needed, he said. Sheffield (no relation to Pioneer Natural Resources Chairman and CEO Scott Sheffield) is the president of Pioneer Natural Resources Alaska, which is based in Anchorage.
“I can’t say enough about the contribution and cooperation that we’ve had from the Alaska service community,” Sheffield said.
And if Pioneer succeeds at Oooguruk, the way is open for other independents to follow, Dove said.
“Ours is a kind of bellweather project,” he said.
Pioneer, one of the United States’ largest independents, first entered Alaska in October 2002, when it purchased a 70 percent working interest in Armstrong Alaska’s Northwest Kuparuk prospect (name later changed to Oooguruk).