Providing coverage of Alaska and northern Canada's oil and gas industry
March 2019

Vol. 24, No.11 Week of March 17, 2019

Explorers magazine preview: Placer unit moves closer to development

AEX pursuing Kuparuk C and Nanushuk intervals at North Slope field: DNR Commissioner Feige intercedes in battle with state

Kay Cashman

Petroleum News

ASRC Exploration completed its first operated exploration well in Alaska in early 2016, when it drilled the Placer No. 3 well. That same year AEX took over operatorship of the undeveloped Placer unit, which has two other wells drilled by former operator ConocoPhillips and is adjacent to the Kuparuk River unit on the east and borders the Pikka unit on the west.

AEX, which is a subsidiary of Arctic Slope Regional Corp., said it plans to produce from the prolific Kuparuk C sands at Placer and later potentially shallower intervals in the Brookian once the unit was online, sometime in 2019-20.

AEX told the Alaska Division of Oil and Gas June 11, 2018, that its proposed 2018-19 development plan included analysis of Brooks Range Petroleum Corp.’s proposed Southern Miluveach unit’s early production facility to handle Placer’s first production.

Placer and the Southern Miluveach’s Mustang field are not adjacent but are close. The division had earlier approved a plan filed by operator BRPC to install a temporary production facility to allow some oil production to begin prior to permanent production facilities going into operation.

First oil from Mustang is anticipated on April 4, 2019, Bart Armfield, CEO of BRPC, told Petroleum News on Feb. 5, 2019.

New dataset, reservoir model

A Jan. 31, 2019, progress report to the division on AEX’s current plan of development said AEX wanted to conduct an 18- to 20-day extended flow test of the Placer No. 3 well starting no later than March 24, in addition to the previous work commitment of testing bottom hole pressure response. (An early March approval from the division gave AEX the greenlight to do the extended flow test.)

The testing project involved building an ice road from an ice road constructed by Oil Search for one of its winter drilling projects, as well as an ice pad.

In preparation for the 2018-19 winter field work, AEX had conducted aerial reconnaissance and surveyed well locations in the late summer of 2018.

In its Jan. 31 report, AEX said it had created a new dataset for the Kuparuk C reservoir by merging data from three 3-D seismic surveys. The use of this data to construct a static model of the reservoir led to a dynamic reservoir simulation model for the entire Kuparuk C oil accumulation. This simulation model was assisting an investigation of development alternatives for the field, AEX told the division, including the optimization of well placement and the running of economic scenarios.

AEX said it also planned to further investigate the potential use of hydraulic fracturing for accessing the reservoir.

Based on the dynamic modeling results, AEX conducted a study into the design of horizontal development wells planned for the unit. Results from the reservoir simulation point to a need for two horizontal production wells and two horizontal injectors for effectively developing the Kuparuk C oil pool. Three of these wells would be drilled from a pad at the Placer No. 1 well location, while a single injector would be drilled from Placer No. 3.

Nanushuk formation

The Jan. 31 report also said that the company was evaluating oil shows in the prolific Nanushuk sandstones in the Cretaceous Brookian encountered by the Placer No. 1 and No. 2 wells.

The Nanushuk formation hosts the oil reservoir sands for the huge Pikka development that Oil Search was conducting not far from the Placer unit.

AEX said that its interpretation of the merged 3-D seismic data indicated that there was a major difference in the geologic settings in which the Nanushuk was formed, between the Pikka and Placer units. However, the company said there had been oil shows in the Nanushuk at Placer No. 1 and 2 wells and it was continuing its investigation and anticipated providing further details at a later date.

In state filings following completion of 2016 drilling for Placer No. 3, AEX had said that the nearly vertical 6,380-foot well had suggested there was potential for intervals in additional to the Kuparuk C sands, including the Cretaceous Brookian Moraine encountered in Placer No. 3.

History behind Placer

Eager to become an operator in its own backyard, AEX parent Arctic Slope Regional Corp., or ASRC, created a “mentoring” agreement for exploration with BP Exploration in the 1990s.

Placer was the first project under the agreement. ConocoPhillips drilled the Placer No. 1 and Placer No. 2 exploration wells in early 2004. Through a farm-in agreement, ASRC acquired a 35.7 percent working interest in the Placer No. 1 well.

Despite promising results from the two-well program, ConocoPhillips and the other partners did not pursue development. But ASRC remained interested.

The regional Native corporation for northern Alaska acquired part of the Placer prospect in a March 2006 lease sale, the Placer No. 1 well in June 2010 and a license over an earlier seismic survey of the region by early 2011. It also created AEX, headed by Theresa Imm, to operate exploration and development work in the future.

In 2013, the Alaska Department of Natural Resources’ Division of Oil and Gas and AEX disagreed about the size for the Placer unit. The company had wanted an 8,769-acre unit covering four leases. The state approved a 1,480-acre unit covering portions of four leases around Placer No. 1 in 2011.

AEX complained and after much debate, the state ultimately approved the larger unit boundaries in November 2014. The ruling required AEX to file a new plan of exploration by the end of the year, post a $2.5 million performance bond and meet a series of work commitments culminating in an exploration well by May 2016, all of which the company did.

The state certified the Placer No. 3 well as being capable of producing in paying quantities in December 2016. Well certification, often used to protect an individual lease from expiration, could also be used to protect an entire unit from expiration, so long as the state approved a plan of development with specific work commitments.

Extension requested

By the time AEX acquired the well and seismic information, its five-year leases were nearing expiration in September 2018. The company asked for a five-year extension, running through September 2021. Then DNR Commissioner Andrew T. Mack instead approved a two-year extension, saying it would balance the needs of the company with the needs of the state to promote competition.

In its request for the extension, AEX had proposed a two-year plan of development for the Placer unit. In the first year, the company would use data from all three Placer wells to determine the “extent, size and continuity of all producible reservoirs”; would initiate facility sharing agreements; would obtain data from the CGG Tabasco 3-D seismic survey and merge it into existing data; and would estimate infrastructure costs.

In the second year, the company would determine future well locations and infrastructure placement and would propose participating areas based on its ongoing reservoir studies.

Then division Director Chantal Walsh took issue with elements of the plan. Without a plan of development that included approved operations, she noted, a certified well could not be used to extend the term of a unit: “The fact that AEX has proposed no production or operations to extend the unit past September 7, 2018 makes unitized development highly unlikely,” she said, referring indirectly to the ability to develop a lease without a unit.

The battle between the division and AEX continued. Walsh resigned from division for non-related personal reasons effective March 1, 2019.

Feige intercedes

The most recent state decision on the Placer unit came from DNR Commissioner Corri Feige on March 11, 2019, when she interceded in the battle between the division and AEX, writing to AEX that her office was currently adjudicating AEX’s Sept. 28, 2018, appeal.

The term of the current Placer unit plan of development was one of two issues raised in AEX’s appeal, currently set to expire in May 2019.

“I am aware of the deadlines this triggers for AEX (unit and lease expiration) and, accordingly, we are expediting our adjudication of the appeal,” Feige wrote in a letter addressed to AEX President Theresa Imm.

Feige also said she was aware of the March 1, 2019, letter from Walsh providing AEX an extension until March 15, 2019 to submit its next, or fourth, plan of development.

“The March 15 extension deadline is hereby vacated. Future deadlines will be re-evaluated in the adjudication of your appeal,” Feige wrote.

She thanked AEX for its patience as DNR works through its appeal, noting “We expect a decision soon.”

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