Caelus argues for a shared sense of purposeFoley comments that Alaskans and the oil companies want more Alaska oil production and the key is more oil development activity ALAN BAILEY Petroleum News
In a talk to the Alaska Support Industry Alliance on Oct. 27 Pat Foley, Caelus Energy senior vice president of Alaska operations, argued for finding common ground and a common sense of purpose to increase Alaska oil production. Alaskans and the oil companies want to see safe resource extraction to increase production. Caelus wants to bring jobs to Alaska by increasing the company’s work in the state, Foley said.
Caelus operates the Oooguruk oil field, offshore the central North Slope, and has exploration and development interests at Smith Bay, off the northwestern North Slope, and in about 350,000 acres of onshore state leases to the east of the Prudhoe Bay area.
Key drivers Foley made his comments about a shared purpose in the context of also considering what, separately, the oil companies and the state government need. The key drivers for the companies are a stable tax regime and an opportunity to make an acceptable return on investment, he said. The companies need to be able to make investments in a project, knowing that the tax rules will not change during the course of the project.
The state, on the other hand, needs to maximize the returns it obtains from its resources. The state needs to balance its budget and protect the savings in the Permanent Fund.
While oil throughput in the trans-Alaska pipeline has declined from some 1 million bpd in 2000 to less than half of that today, recently announced future oil development options could restore throughput back to around that 2000 level, Foley said. He was referring to Armstrong Energy’s proposed Nanushuk development, Caelus’ recently announced major discovery at Smith Bay, as well as Caelus’ planned Nuna development at Oooguruk and other developments planned by ConocoPhillips and Brooks Range Petroleum.
The keys are a more favorable oil price and fiscal stability, he said.
On the other hand, without a boost in oil production, problems would arise for oil flow in the trans-Alaska pipeline at flow rates of about 300,000 bpd or less - at that point the cost structure will change and the tariff will rise, Foley said.
Caelus achievements Foley expressed pride in what his company has achieved in Alaska. The company has an exemplary safety and environmental record, he said. To date, the Oooguruk field has produced 27 million barrels of oil, thus adding about $150 million in royalties and taxes to state revenues.
Although Caelus had originally been attracted to Alaska by the great rocks in the state’s petroleum geology, the most recent tax regime, referred to as Senate Bill 21, had proved a major factor in bringing the company to the state, Foley said. Provisions within this legislation helped defray the cost differential between operating in Alaska and most other places around the world, while also allowing new companies in the state to compete with the state’s big, legacy oil producers, he said.
But, primarily because of low oil prices, development drilling at Oooguruk is currently on hold, as is the Nuna development in the field.
Compared with the value of Nuna with a $70 oil price under the provisions of Senate Bill 21, House Bill 247, legislation passed earlier this year to address the state fiscal deficit through changes to the tax system, reduced that value to about 62 cents on the dollar, Foley said. Further tax legislation, referred to as Senate Bill 5005, which was introduced but not passed, would have made Nuna worth 15 cents on the dollar, at which level the project would not move ahead, he said.
Before placing Nuna on hold, Caelus had already built the onshore pad and access road for the project. About $1 billion in expenditure remains to bring the development on line, with the potential production of about 100 million barrels of recoverable oil.
Caelus has acquired 3-D seismic data across its exploration acreage to the east of Prudhoe Bay, has developed a prospect inventory and may drill a couple of exploration wells in that acreage in 2018, Foley said.
Smith Bay The drilling of two wells earlier this year in Smith Bay, on the Beaufort Sea coast some 125 miles west of the existing oil infrastructure, has revealed an oil resource with perhaps 6 billion barrels of oil in place, Foley said. The discovery lies in a 1,000-foot reservoir interval, with about 200 feet of net pay, at a depth of about 6,000 feet. The sands are fairly tight, but Caelus thinks that development would be possible using mechanical fracturing, especially since the oil is relatively light.
Peak production could reach about 200,000 barrels per day, with direct payments to the state over the life of the field of about $28 billion in royalties and taxes, Foley said. And, with the peak creation of about 2,000 oilfield jobs and perhaps the indirect generation of 40,000 jobs, the total contribution to the state, including wages payable, could amount to $34 billion, he said.
Caelus has yet to conduct any oil flow testing in its discovery and hopes to return to Smith Bay in 2018 to drill, fracture and flow test a horizontal appraisal well. Meanwhile, development plans are highly uncertain and speculative.
During the question and answer session after Foley’s talk, Foley commented that Caelus hopes for a development project that leads to first oil around 2022. However, Foley has previously said that he expects that the development, once it is underway at Smith Bay, might take around five years to deliver first oil. Given the timing of the appraisal drilling that would surely push first oil beyond 2022. The development timeframe would also presumably depend on the amount of appraisal drilling required, and on whether any federal permitting would trigger the preparation of an environmental impact statement prior to development operations on the ground. An EIS for a project of this type typically takes about two years to complete.
Petroleum News has asked Caelus for clarification on the timing questions, but the company had not responded before the paper went to press.
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