Vol. 24, No.43 Week of October 27, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

It’s official: 150,000 bpd

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Oil Search bumps North Slope Pikka production to 150,000 barrels of oil per day

Kay Cashman

Petroleum News

In the Oct. 22 release of its third quarter results, Oil Search upped its North Slope Pikka project production from 120,000 barrels of oil per day to as much as 150,000 bpd.

Over the years company officials have hinted of an increase - and a value engineering goal in a slide from a September presentation noted 135,000 bpd, but the rest of that presentation referred to 120,000 bpd.

This is the first time 150,000 bpd has come up - and it’s in the introductory highlights.

“Potential debottlenecking opportunities for the full field development facilities were reviewed, which could increase throughput from 120,000 barrels of oil per day to up to 150,000 bopd,” Oil Search said, noting startup for the full field development would likely begin at the end of 2024.

Excitement just ahead

The third quarter report revealed more about Oil Search’s upcoming winter wells that will test Nanushuk analogues - Stirrup in the Horseshoe block and Mitquq in what the company dubbed the “Pikka East Block.”

The Mitquq prospect is approximately 6.2 miles from the proposed Pikka unit ND-A pad.

If successful, Oil Search said Mitquq has the potential to be tied-back to the proposed Pikka unit central processing facility, while success at the Stirrup prospect could help underpin a standalone central processing facility for Horseshoe.

The report’s introductory highlights on third quarter activities were:

* Pikka unit development on track to enter FEED by the end of this year.

* Maturing plans for previously announced early 2022 production of 30,000 bpd.

* Investment bank engaged to assist in a partial sell-down of Alaska equity interest.

Reducing equity to 35%

Oil Search currently holds a 51% working interest in much of its Pikka unit, Horseshoe block and area exploration leases, most of which are west of the central North Slope, with Repsol SA owning 49%.

The two partners have an AIPN model joint operating agreement that allows Oil Search to retain approximately a 35% interest in the core assets and maintain its position as operator. (AIPN is the Association of International Petroleum Negotiators, an independent not-for-profit professional membership association that supports energy negotiators.)

The partial sell-down of Oil Search’s Alaska interest is targeted to take place in mid-2020, just ahead of the company’s final investment decision on the Pikka development

Oil Search and Repsol originally intended take on a third partner “back-to-back with the exercise of the Armstrong purchase option,” Oil Search acknowledged in a June 27 statement.

“Despite not running a formal process, in late 2018/early 2019 Oil Search received strong expressions of interest from third parties, including an attractive conditional offer to acquire an interest from the joint venture in the Pikka unit development project and adjacent leases,” the company said at that time.

The process was “suspended in early 2019 due to a change in partner views … following the positive results of the 2018/19 appraisal drilling and the increase in resource potential recognized in the Horseshoe area, both within the existing field extension and in newly identified Nanushuk prospects within the Horseshoe block,” the company said, validating rumors and remarks from Repsol executives that the Madrid-based major was interested in increasing, not decreasing its North Slope investments.

A couple of months later Oil Search said it wanted to do the same thing with early results from the 2019/20 winter drilling season: “We believe this timeframe will enhance the value of our sell-down, by incorporating the expected resource upgrade within the Pikka unit, optimized drilling information and early results from the 2019/20 winter drilling season.”

Oil potential increasing

The third quarter report also mentioned the resource upgrade, noting “early seismic reprocessing results and additional data from analogous formations indicate a likely material upgrade of resource estimates for the Pikka unit Nanushuk reservoir and satellite fields, above the 500 million barrels (gross) acquisition case. This data is currently undergoing evaluation by an independent expert and the company will issue updated resource figures when the development enters FEED.” (FEED stands for front-end engineering and design.)

The company that put the Pikka and Horseshoe area lease position together and first recognized the immense potential of the Nanushuk formation, Armstrong Energy, and the first partner it brought into the deal, Repsol, have previously estimated that the Nanushuk reservoir under Pikka and nearby leases could hold 1.2 billion barrels of recoverable light oil.

Targeting 50,000 bpd early?

Regarding early production in mid-2022 of 30,000 bpd, the third quarter report said the output will come from a single drill site, but it did not mention the status of negotiations with a nearby operator(s) for the processing and sale of early Pikka production until Oil Search’s own processing facility is ready for oil.

Further, the report did not mention the information contained in a September presentation slide that said Oil Search’s Alaska team through a value engineering process is looking to increase early production to 50,000 bpd.

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