The Explorers 2018: BlueCrest exploration taking backseat to development

Company focusing on oil development from onshore pad; potential offshore gas exploration seems to be on hold

Eric Lidji

for Petroleum News

BlueCrest Alaska Operating LLC is advancing slowly at Cosmopolitan.

The local subsidiary of the Texas-based independent brought the offshore Cook Inlet unit into production in 2016, after three years of work and nearly 50 years of failed attempts by previous operators. But its early development efforts have hit some technical snags, and its exploration plans seem to be on hold, due to market and political conditions.

BlueCrest brought the Cosmopolitan development into production from the Cosmopolitan No. 1 well, which the company had helped drill back as an exploration well in 2013 and later converted to development. The company planned to conduct a five-well program in early 2017. The company ultimately did complete five penetrations at the Cosmopolitan unit during the year, but not in the way it had originally intended.

BlueCrest completed the H-16 well in March 2017. By late September 2017, after hydraulic fracturing operations, the well was producing some 330 barrels per day.

The company began drilling the H-14 well and associated H-14 lateral in mid-March 2017, after completing drilling operations on the H-16 well. But technical problems plagued operations, forcing the company to make three attempts on the H-14 Lower Lateral. The company finally completed the 22,300-foot lateral in late September 2017.

“BlueCrest was running the liner into the H-14 Lower Lateral when the Baker Hughes Packer/Liner Hanger Assembly failed and prematurely & permanently set the liner in the well (-4,000 ft. short of TD (total depth)),” the company wrote in filings. “BlueCrest completed a milling/fishing job to recover the liner that was left in the cased hole.”

The complex geology at Cosmopolitan is largely to blame. The compartmentalized reservoir requires fracturing operations that are larger than have been usual for Alaska.

Added to those complexities are operational challenges. Cosmopolitan is an offshore reservoir being developed from onshore drilling facilities, requiring long directional wells. According to the company, the H-16 well was the longest extended reach well ever drilled in Cook Inlet - a 22,810-foot well which reached a vertical depth of just 7,089 feet.

Going forward

The five-well program BlueCrest had planned for 2017 included the H-16 well, the H-14 well and H-14L lateral, and the H-12 well and H-12L lateral. The complications on the H-14 pair, combined with financial uncertainty after the state withheld promised tax credits, led the company to defer activities on the H-12 pair until an undetermined time.

In its fourth plan of development for Cosmopolitan, approved in late 2017, BlueCrest announced plans to spend the coming year evaluating production from H-16 and H-14.

“Given the complexity of the well completions, it is reasonable for BlueCrest to carefully evaluate its well design and drilling and completion techniques before drilling the next well. This careful consideration can prevent physical and economic waste and maximize ultimate recovery, therefore promoting the state’s and BlueCrest’s interest,” Division of Oil and Gas Director Chantal Walsh wrote in a Nov. 28 decision approving the plan.

BlueCrest also said it would drill one new well or sidetrack this year, saying it planned to permit the H-16 Upper Lateral and H16 Exploratory Lateral as potential candidates. (The potential exploratory lateral is why BlueCrest is included in The Explorers this year.)

As currently envisioned, the H-16 Upper Lateral would target the Starichkof. Pennzoil discovered Cosmopolitan in 1967 with the Starichkof State No. 1 well. Phillips confirmed the discovery and also discovered Hemlock oil with the Hansen No. 1 well in 2001.

BlueCrest also said that it needed to revise its permits for the H-12 well to account for changes to the completion program, presumably to incorporate lessons learned at H-14.

Other exploration

The company is currently using an onshore pad near Anchor Point to drill directional wells to an offshore target. But the company has also expressed an interest in using a jack-up to drill vertical wells into shallower oil and gas prospects located farther offshore.

In an application to the U.S. Fish and Wildlife Service in early 2016, the company proposed a three-well exploration program with both offshore and onshore components, but withdrew the application that summer, citing concern about market imbalance in Cook Inlet and frustration over tax policy - specifically Gov. Walker’s veto of approved credits. “What (the governor’s action) did is create a tremendous distrust of the state’s integrity going into the future,” BlueCrest President J. Benjamin Johnson said in July 2016. “Unless something is worked out to help the small oil companies work through the payment delay, this is going to have a long term negative impact to the state and will surely come into play as the state tries to obtain financing for new capital programs.”

A proposed gas exploration program in partnership with WesPac Midstream LLC remains on hold. The program would also require offshore drilling from a jack-up rig.

In previous plans, BlueCrest also noted that a 3-D seismic program from 2005 “suggests that the southern exploratory blocks potentially have producible hydrocarbon deposits at a deeper depth” that would require “additional evaluation” to determine if the deposits are economically viable. Both the oil and gas developments are focused on leases near the center of the unit, leaving areas to the north and the south for future exploration work.

In particular, the company had identified a prospect worth exploring in the south, located predominately within ADL 391899 and potentially extending into two neighboring leases.

In 2017, BlueCrest contracted ADL 391902 from the unit. The lease was one of the three leases in the north offered in a special sale in June 2011 because of their prospectivity.