ConocoPhillips Alaska Inc. is farming-out the rights to develop the deep oil prospects at its North Cook Inlet unit to Buccaneer Energy Ltd., the companies announced May 6.
The deal requires Buccaneer to use its jack-up drilling rig to spud two wells at the legacy offshore natural gas field. The wells must be on different exploration blocks at the unit. Buccaneer must drill the first well by the end of 2014 and the second by the end of 2015.
Under the deal, Buccaneer is also licensing existing ConocoPhillips 3-D seismic covering both the deep oil prospects at North Cook Inlet and the adjacent Northwest Cook Inlet.
Buccaneer operates Northwest Cook Inlet and two other offshore fields — the Southern Cross unit and the Cosmopolitan prospect — in addition to its onshore properties.
All three offshore fields require a jack-up rig for exploration, and all three have upcoming work commitments for the state.
The recently contracted work at North Cook Inlet will require Buccaneer to change its original offshore drilling program for the next two years. The company said it may ask the state for work extensions, and recently made a request to change its deadlines at Cosmopolitan.
The deal between ConocoPhillips and Buccaneer involved no money upfront, but ConocoPhillips retained an overriding royalty interest in deeper segment of its leases.
Oil exploration to boomThe deal is a sign of the times for Cook Inlet.
After decades of predominately producing natural gas from the basin, companies are increasingly exploring for oil in deeper formations around existing fields. In addition to North Cook Inlet, Buccaneer is looking for oil at Southern Cross and Cosmopolitan.
Earlier this year, in a move similar to the North Cook Inlet deal, Aurora farmed-out the deep exploration and development rights at two leases at its Nicolai Creek unit to Apache Corp. Apache is bullish about using new technologies to find overlooked Cook Inlet oil.
Another recent entrant to the state, Hilcorp, wants to explore for oil at the Susan Dionne pad at the onshore Ninilchik unit. And Furie Operating Alaska LLC is interested in deep oil deposits at its Kitchen Lights unit, in addition to shallower gas-bearing formations.
The North Cook Inlet unit is among the oldest and most prolific fields in the Cook Inlet basin, having produced nearly 2 trillion cubic feet of natural gas from the Sterling and Beluga formations since the late 1960s. The unit has never had any commercial oil production, but 13 wells drilled since 1962 have penetrated the deeper Lower Tyonek, Hemlock, Sunfish and West Foreland formations, according to Buccaneer research.
The two best wells among those produced each some 4,000 barrels of oil per day. The ARCO North Forelands No. 1 well from 1992 tested at 4,343 barrels of oil equivalent per day (with 4,160 bpd of 43 API oil) and the Phillips North Cook Inlet No. B-02 from 1998 tested at 4,320 boe per day (with 3,874 bpd of 40 API oil), according to Buccaneer.
One of the wells Buccaneer plans to drill would offset North Forelands No. 1. The other would offset the Shell North Cook Inlet State No. 1 well from 1964, which produced 2,270 bpd of 57 API oil from the Lower Tyonek C Sands, according to Buccaneer.
Buccaneer recently hired Netherland, Sewell and Associates Inc. to estimate the potential oil reserves at North Cook Inlet and expects to book “meaningful” reserves, it said.
Work commitments pendingThe deal comes as Buccaneer is managing numerous other commitments.
In October 2012, the Alaska Division of Oil and Gas placed Southern Cross and Northwest Cook Inlet in default because Buccaneer missed its initial work commitments at both units. Buccaneer deferred its planned wells because the jack-up rig it needed to drill them was delayed in arriving from Asia and delayed again at a dock in Homer.
The rig is currently at the Cosmopolitan unit, preparing to drill.
To cure the default, Buccaneer must complete wells at Southern Cross and Northwest Cook Inlet by Oct. 31 2013. In announcing the cure, division Director Bill Barron said the state would not terminate the units if Buccaneer failed to meet the new deadlines.
Barron also said the state had approved the units based on not only work commitments, but also “on the exploration and development benefits of Buccaneer bringing a jack-up rig to Cook Inlet that would not only serve Buccaneer in drilling its prospects, but could also create a unique circumstance where the rig could be shared with other operators, thereby promoting exploration and development of other offshore Cook Inlet fields and providing increased potential for economic growth and employment opportunities.”