DNR’s Feige dismisses one default by Alliance on Guitar unit
 Click here to go to the full PDF version of this issue, with any maps, photos or other artwork that appears in
some of the articles.
Kay Cashman Petroleum News
One of the two Guitar unit defaults issued by the Alaska Department of Natural Resources’ Division of Oil and Gas has been cured, per an Aug. 19 decision by DNR Commissioner Corri Feige.
On March 26, Alliance Exploration LLC, operator of the central North Slope Guitar unit, received a notice of unit termination for failure to provide a plan of exploration update and failure to comply with applicable statutes and regulations requiring a unit operator bond to be posted with DNR (state statute 11 AAC 83.390).
The small independent promised to secure the bond by June 25 but did not do so. However, the bond was received by the state on Aug. 5 from Alliance’s surety bonding agent, Bowen, Miclette & Britt Insurance Agency of Houston, Texas.
In her decision to dismiss the March 25 default, the commissioner asked that Alliance also file its second plan of exploration update, which had been due by July 1, no later than Sept. 1. Not doing so, she said “will be grounds for another default.”
Second default The second default was not cured. It had been issued Feb. 7 for failure to meet work commitments; specifically, to drill a well by March 31.
In a May 16, 2018, letter, the division questioned statements made by Alliance in an April 2018 exploration progress report that said the drilling delay arose from the complications of adding a lease to the unit. The company said it had informed the agency prior to unit formation that drilling a well in the unit was premised on the division assigning the additional lease. The company said it had understood that this lease would be assigned in the fall of 2017.
Then division Director Chantal Walsh said that neither Alliance’s application to form the Guitar unit nor the division’s approval of the unit formation made mention of the assignment of the additional lease, nor of the lease assignment being integral to the unit plan of exploration.
The lease in question The Guitar unit consists of three state leases, which had previously been part of the Hemi Springs unit, formed in 1983 by ARCO Alaska and terminated in 1992.
Alliance has a 100% working interest in its three leases, while Samuel Cade and Daniel Donkel have small overriding royalty interests. The additional lease, which Alliance said in its April 2018 progress report was integral to its exploration plan, sits at the northwest quadrant of what, with the three Guitar unit leases, would form a square shape.
ConocoPhillips and minority partners were holding that fourth lease, ADL 28249, because the Hemi Springs State No. 1 well, drilled by ARCO in the lease tract in the mid-1980s, was certified as capable of producing hydrocarbons in payable quantities from the Kuparuk C formation.
“The well head is on the Conoco lease, but the bottom hole is on one of our leases,” Barry Foote, a member owner of Alliance, told Petroleum News June 25.
In the company’s Guitar unit plan of exploration, approved by the division in 2017 in conjunction with the unit approval, Alliance said that it would drill a well in one of its three leases in the unit, preferably during the winter of 2018, but no later than the winter of 2019, depending on the permitting situation.
The well would penetrate the Ivishak formation, the formation that hosts the Prudhoe Bay field reservoir, with a lateral well targeting a seismic anomaly in the Kuparuk C. Depending on the results from the first well, Alliance said it might drill a second well in the following year.
And positive results from the first well would trigger a plan for delineation drilling, Alliance’s plan said. It did not mention access to a fourth lease, so if Alliance had told someone in DNR or the division, there was no written record of it.
Alliance said in its April 18, 2018, progress report that it had taken several steps to enable the well to be drilled by the March 31, 2019, deadline. Those steps included moves to acquire the fourth lease, the acquisition and processing of 3D seismic for the unit; the hiring of a consultant to evaluate drilling targets; starting the permitting for the drilling; initiating the preparation of a contingency plan; preparing cost estimates for the drilling project; identifying a contractor for the drilling; and hiring an expert for the eventual marketing of oil from the unit.
Oil potential The division’s approval document for the Guitar unit said that Alliance had used an interpretation of the logs from the Hemi Springs well to infer the location of the oil-water contact at the base of the Kuparuk C oil accumulation and had used 3D seismic to trace that contact into the Guitar unit leases - the seismic interpretation suggested space for a potential oil accumulation up dip of the oil-water contact.
Although Alliance’s well would target the Kuparuk C and Ivishak, oil shows had been demonstrated in the West Sak and Ugnu across the region, the document said.
Sam Nappi is listed in division paperwork as the president of Alliance.
Barry Foote and Derek Foote, who heads up Alliance in Alaska and is based in Sterling, told Petroleum News in 2018 their preference was to find a partner to come in and drill the exploration well with them. (Nappi and the Footes are the member owners of Alliance.)
Derek Foote said the Guitar unit “is the easiest North Slope play to get developed because it’s easily accessible and has an existing well on one lease.”
The operator “should be able to cut the time way down” that it takes to first oil, he said, noting it would only require 6 to 7 miles of ice road to drill the well Alliance had scheduled. “The staging area that BP has is right there; there’s an existing pad.”
Barry Foote told Petroleum News June 25 that although the unit could have an upside in the neighborhood of 200-300 million barrels of oil, his company still needed a partner to help cover the cost of drilling a well.
Alliance gets fourth lease In June, Alliance said it had finalized a lease transfer document and production sharing agreement with ConocoPhillips on the fourth lease.
In response to Alliance’s request for a two-year extension, on Feb. 7 Feige had given the company a one-year reprieve until March 31, 2020.
In her Aug. 19 letter to Alliance, Feige said she wanted Alliance to include the well in its updated plan of exploration.
- KAY CASHMAN
| 