Vol. 26, No4 Week of January 24, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

Smith Bay interest

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Company is acquiring leases with intention to appraise major oil find

Alan Bailey

for Petroleum News

Smith Bay Company Alaska is in the process of completing its acquisition of oil and gas leases in Smith Bay, on the Beaufort Sea coast towards the western end of the North Slope.

In 2016 Caelus Energy Alaska announced a major oil find, named the Tulimaniq discovery, in the Torok formation at a depth of 5,000 feet under the bay, following the drilling of two wells in state leases. The company estimated the possibility of at least 6 billion barrels of oil in place. Caelus anticipated that there may be around 2 billion barrels of recoverable oil but has not been able to conduct appraisal drilling in the discovery.

David Pfeiffer, CFO of Smith Bay Company Alaska, has told Petroleum News that his company was formed with the objective of holding the Smith Bay leases, and that the company anticipates conducting appraisal work in the leases. There are 26 state leases and three federal leases in the area of interest, Pfeiffer said.

At this point Smith Bay Company Alaska has completed the transfer of Borealis Alaska Oil’s 17.5% interests in the state leases. The company has entered into an agreement for the acquisition of Caelus Energy’s lease interests and is waiting for state approval of the transfer of these interests. Borealis has previous told Petroleum News that it was divesting its Smith Bay lease holdings, having decided to pursue opportunities elsewhere on the North Slope.

Once all of the lease transfers have been completed Smith Bay Company Alaska will have ownership interests of 100% in the federal leases and 92.5% in the state leases. L 71 Resources LLC will own the remaining percentage of the state leases, Pfeiffer said.

Appraisal program

Following the completion of the lease transfers Smith Bay Company Alaska plans to raise money and seek partners to conduct an appraisal program, to build on the work that Caelus conducted in 2015-16. Pfeiffer anticipates continuing work in the field, presumably conducting some appraisal drilling, potentially in 2022, 2023. Meanwhile, the company could proceed with some long lead time work such as permitting, Pfeiffer said.

Smith Bay Company Alaska also anticipates seeking to have its Smith Bay leases unitized and sees parallels with Shell’s move to unitize state leases in western Harrison Bay, to the east of Smith Bay.

There is modern 3D seismic data for Smith Bay. As part of its deal with Caelus Energy, Smith Bay Company Alaska is acquiring the Caelus operated company that was involved in the Caelus Smith Bay project and that holds much of the Caelus data relating to the bay, Pfeiffer said.

Confident of viability

One of the main challenges at Smith Bay consists of the cost of conducting operations or developing an oil field in such a remote location, distant from the existing North Slope oil infrastructure. However, the large scale of the oil prospect at Smith Bay is enough to create interest, Pfeiffer said, commenting that, given the promising findings from Caelus’ work, his company is confident of being able to prove the viability of the development of the significant oil in place.

“It’s definitely a challenge. It’s an expensive project,” he said. “But it’s also got a lot of upside. We’ve got some people who are excited about it.”

Light oil

Following its Smith Bay discovery, Caelus provided information about the nature of the find. The company’s two wells had discovered light oil with an API of around 41, 42 in sands of an ancient submarine fan structure in the Cretaceous-age Torok formation. The Torok, a part of the relatively shallow Beaufortian rock sequence, was typically deposited at the bottom of the margin slope of an ancient marine basin. The formation is associated with the Nanushuk formation that has been the focus of recent major oil discoveries under the western North Slope - the Nanushuk tends to have been deposited higher on the basin margin.

It is possible that the oil originated from the HRZ, one of the major oil source rocks in Arctic Alaska - the HRZ lies immediately below the Torok at Smith Bay. There is, however, some uncertainty over the oil’s source, given that the thermal maturity of the HRZ at Smith Bay appears a little too low to have generated the light oil.

Adding to the evidence for prolific oil at Smith Bay is the existence of oil seeps in the region, including a long-known seep at Cape Simpson. Bathymetric highs detected in Smith Bay seismic data suggest the presence of active oil seeps on the seafloor in the bay.

The Caelus wells encountered about 200 feet of net oil pay, packaged into six different sand lobes. The total thickness of the reservoir rocks was 1,500 to 1,800 gross feet.

Nature of the reservoir

The relatively low permeability of the reservoir rocks could present a challenge for oil production. However, the fact that the oil is very light presumably offsets this disadvantage.

Torok sands tend also to be prone to compartmentalization that can prove challenging for oil production. Caelus has said that, although the resolution of the available seismic is too low to determine the extent of any compartmentalization, the seismic does indicate the presence of continuous sands, especially in the lower sand body.

Drawing parallels with production techniques used in the Oooguruk field, offshore the central North Slope, Caelus has suggested that production at Smith Bay would likely involve the use of horizontal wells and fracking techniques.

Appraisal drilling, including some flow testing, would obviously be needed to determine the production characteristics of the reservoir, with further drilling also needed to confirm the lateral extent and continuity of the oil pool.

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