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Vol. 14, No. 51 Week of December 20, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Savant ahead of schedule

Vigil: ACES works for small explorers, producers; hires lobbyist to make sure Alaska legislators aware of independent’s position

Kay Cashman

Petroleum News

Savant Alaska is ahead of schedule on the construction of its ice road to the eastern North Slope’s Badami unit, where the company plans to finish an oil exploration well it began last winter. The well is in the Denver independent’s Red Wolf prospect, which lies in the western part of the shut-in Badami unit.

In a three-week period in November lead contractor CH2M Hill and subcontractor Cruz Construction pre-packed the ice road route, which starts at the eastern end of the North Slope’s road system, specifically 10 miles east of Prudhoe Bay, at the edge of the causeway to the Endicott oil field.

The contractors began ice road construction on Dec. 3, and have since been completing about a mile of the 27.5-mile road each day. The ice road should be rig-ready around Jan. 10.

Because the ice road is being built farther inland, away from the Beaufort Sea coastline where last winter Savant had to contend with thin ice, storm surges and rerouting for polar bear dens, drilling in 2010 is expected to begin two months earlier, in mid-January, company executive Greg Vigil told Petroleum News Dec. 16.

As part of a 2008 farm-in deal with BP to improve oil recovery rates at Badami, which BP temporarily shutdown in 2007 because of exceedingly low production rates, Savant also plans to drill Badami’s first redevelopment well this winter.

All drilling is being done from Badami’s single, compact pad, B1, which also holds the unit’s production facilities.

The Red Wolf B1-38 well is primarily targeting oil in the Middle Ellesmerian Kekiktuk formation, a deeper and older geologic formation than the Brookian turbidite sands where previous Badami development by BP occurred from six vertical and near-vertical wells.

The redevelopment well will be a sidetrack to BP’s existing B1-18 vertical well, utilizing horizontal well construction.

Depending on “observed results” Savant might prepare for a well production test or for a hydraulic fracture treatment at a later date, Vigil said.

ACES working well for Savant

As part of its agreement with BP, Savant is evaluating the re-start of Badami production from the Brookian formation, but its investment decisions are influenced by the state’s current production tax regime, commonly referred to as ACES. Rumors that changes in ACES, Alaska’s Clear and Equitable Share, will be considered in the 2010 session of the Alaska State Legislature are worrisome, Vigil said. So worrisome that Savant has, for the first time, hired a lobbyist.

“We’ve engaged David Parish & Associates, just to make sure our presence is known … to make sure legislators know we are exploring on the North Slope largely because of ACES.

“The state’s qualifying capital expenditures and net operating loss credits are paramount to … our exploration effort in Alaska. … They are a great incentive for us to continue to explore in the state,” Vigil said.

“Certain ACES provisions are very important and serve their purpose well. Adverse changes to those parts of ACES would not be good for small producers and explorers and are of concern to us.”

The company’s “Badami plant re-start analysis is particularly sensitive to potential ACES changes,” he said. “We can’t do an economic model that we can trust if legislative changes are in the works. … The uncertainty increases our risk.”

As is, ACES allows smaller producers to have “a severance tax credit if they produce less than 50,000 Btu-equivalent barrels per day — the first $1 million per month of severance tax liability is exempt if you are a small producer on the North Slope.”

Without that relief and the tax credits, Vigil said, “barring the discovery of new reserves (such as at Red Wolf), the financial risk associated with resuming production from the existing reserves at Badami would be too great.”

Just 2,600 feet left to drill

This winter’s ice road inland route, which roughly follows the Badami pipeline corridor, not only adds time for drilling at the beginning of Savant’s program, but also reduces the risk of having to wrap up operations ahead of schedule at the end of the season, which Savant had to do last spring due to unusually warm weather that caused early breakup along the Sagavanirktok River, over which ran Savant’s 2008-09 ice road — a road it built and shared with ExxonMobil for that company’s Point Thomson operations east of Badami.

As of Dec. 16, Cruz Construction had completed 13 miles of ice road to the Badami pad, where last winter Savant drilled its Red Wolf exploration well to a measured depth of 12,835 feet and set intermediate casing.

“This winter we have approximately 2,600 feet left to drill to test the Kekiktuk” formation, Vigil said.

BP’s highly efficient Endicott field produces oil from the Kekiktuk, and Red Wolf is down-trend from BP’s Beaufort Sea, 100 million-barrel Liberty project, in the same fault block as Liberty’s discovery well.

In a January interview with Petroleum News, Vigil said Savant’s “most likely reserve estimate” for the Kekiktuk accumulation was 45 million barrels.

Initially, before it ran into technical production problems with the highly compartmentalized Brookian reservoir, BP hoped to recover 120 million barrels of oil from those sands, which sit about 2,000 feet above the Kekiktuk.

Shale fracturing technology

Operator BP had hopes of producing 30,000 barrels a day from Badami, but while early production ramped up as expected, it soon fizzled, dropping to only about 1,400 barrels a day by 2003 and 900 barrels a day in 2007.

In a 2008 letter, Kevin Banks, director of the State of Alaska’s Division of Oil and Gas, said that Savant “is a capable third party based on its experience drilling an Alaskan exploration well (offshore Kupcake well, near Liberty, in early 2008) and applying new fracturing technology in low permeability shales.”

Depending on what it finds at this winter’s Brookian sidetrack, Savant is looking at combining horizontal drilling with hydraulic fracturing — pumping large volumes of fluid into the ground to crack the formation — to try to improve the oil flow from Badami’s Brookian sands.

Hydraulic fracturing has been tried before at Badami, but only on traditional vertical wells.

Savant Resources, parent to Savant Alaska, is active in the Bakken shale in North Dakota, the New Albany shale in Kentucky and in the Mancos shale in Colorado.

Last winter Savant used Doyon Rig 16; in 2010 it will be using Doyon Rig 15, which was moved from Kuparuk to Prudhoe on Dec. 13.

Vigil said it will take one day to mobilize the rig from Prudhoe to Badami.

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