The race is on; two companies in lead

Two independents — Kerr-McGee and Pioneer — hope to be the first independent to operate a producing field on Alaska’s North Slope

Kay Cashman

Petroleum News Executive Editor

The race to be the first independent to operate a producing oil field on Alaska’s North Slope is a close one. Ahead of the race are two large independents, Texas-based Pioneer Natural Resources and Oklahoma-based Kerr-McGee.

Both companies are new to Alaska, lured north in the last three years by Colorado-based Armstrong Oil & Gas, an independent which does business in the state through affiliate Armstrong Alaska. Both Pioneer and Kerr-McGee took operatorship and majority interest in prospects identified by Armstrong and, thanks to a permitting process already under way by their smaller partner, immediately drilled exploration wells.

Pioneer came to the state in November 2002, taking the lead in Armstrong’s Northwest Kuparuk project in Harrison Bay between the ConocoPhillips’ operated Kuparuk River unit and Thetis Island in the shallow waters of the Beaufort Sea. Pioneer later renamed the project Oooguruk, which means bearded seal in the Inupiaq language of the Native people of the North Slope.

Fifteen months later, in January 2004, Kerr-McGee took the lead on Armstrong’s Nikaitchuq project, which is just a few miles east of Oooguruk and also north of Kuparuk in the shallow waters of the Beaufort, although plans are to develop this prospect from onshore. Nikaitchuq means “to persevere” and “will target multiple objectives” in Inupiaq.

Pioneer and Armstrong announced the discovery of oil at Oooguruk in 2003 following the drilling of three exploration wells. Oooguruk paperwork filed with state agencies in late July put peak oil production at 18,000 to 20,000 barrels of oil per day.

Kerr-McGee and Armstrong announced a discovery at Nikaitchuq in 2004. Kerr-McGee officials have estimated peak oil production at 60,000 bpd. Neither company has released reserve estimates for the projects.

In its permit applications Pioneer puts first production from Oooguruk in the fourth quarter of 2007. Kerr-McGee puts first production at Nikaitchuq as early as the first half of 2006.

That puts Nikaitchuq in the lead, although one state official said in early August not to rule out Pioneer getting their project up and running first.

“It’s too close to call,” he said, asking not to be identified because “it’s a friendly race — more against the challenges of North Slope development versus each other. Both companies are very serious about making these projects happen.”

He also said Kerr-McGee’s Nikaitchuq project is bigger than Oooguruk and involves “the construction of standalone processing facilities, which will take more time to construct than Pioneer’s drill site at Oooguruk. But Kerr-McGee is also building their project in stages, so it will have production at Oliktok Point up and going sooner, according to their development plan.

“It’s my understanding Pioneer is still working on a facility sharing agreement with ConocoPhillips to process Oooguruk crude at Conoco’s Kuparuk River facilities,” which might also add time to development.

Both companies must have part of their project area rezoned, which requires filing a rezoning application with the North Slope Borough, something that has already been approved for Nikaitchuq, but not for Oooguruk. That process can take months.

“We’ve not yet filed for rezoning, but we have had some dialogue with the borough. … We plan to have it filed within the month of August,” Pioneer’s top executive in Alaska, Ken Sheffield, told Petroleum News Aug. 10.

Permits filed for both projects

Neither company has sanctioned their project, but “I don’t think we’d be filing permits if we weren’t serious about the project,” Scott Sheffield, Pioneer’s chairman and chief executive officer, told analysts in a conference call Aug. 2.

Kerr-McGee, which drilled the most exploration wells on the North Slope in the winter of 2005, has also made optimistic statements about Nikaitchuq.

But as one state official put it, both companies could still win the race.

Nikaitchuq could be the first independent that operates a producing oil field onshore Alaska’s North Slope. And Pioneer could be the first independent operating an offshore North Slope field in the state.

Mark Myers, director of the state’s Division of Oil and Gas, agrees.

“Both projects have been actively worked,” he said Aug. 9.

“Both companies have drilled exploration and some delineation wells. The goal for both Pioneer and Kerr-McGee is getting their project sanctioned; mainly by working through the economics of the projects…. They’ve both worked hard to determine the method of development most appropriate.”

Both companies have said they expect to make decisions on sanctioning their projects by the end of the year.