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State approves Sakkan unit at Red Dog Teck Cominco Alaska looking at go/no-go decision by 2011; surface production equipment to be installed this year Kristen Nelson Petroleum News
The Alaska Department of Natural Resources Division of Oil and Gas has approved Teck Cominco Alaska’s application for the Sakkan unit. The unit is adjacent to the Red Dog lead-zinc mine in Northwest Alaska and Teck Cominco’s objective is to use natural gas at the mine. The Sakkan unit contains four state leases and covers approximately 19,000 acres.
Acting division Director Bill Van Dyke said in an Oct. 30 decision that Teck Cominco plans a go/no-go decision on future development in 2011, with permitting complete and construction of roads and drill pads scheduled for the spring and summer months. Development drilling would start in 2011.
To get to that point, Teck Cominco plans drilling during the barge season window of July to September beginning in 2007.
This year surface production equipment will be installed at existing wells and a gathering system will be constructed for sending produced water to a central pumping facility. The division said an all-season produced water pipeline would be constructed to the Red Dog mine tailings pond so that well de-watering and production testing can continue through the winter months. De-watering is expected to require nine months or more before gas production potential can be adequately assessed.
Sakkan is a shale gas prospect. There are four wells, two drilled last year and two this year, all on NANA lands outside the unit area. Access roads and drill pads were constructed in early 2006.
Up to four additional exploration wells may be drilled in 2007 on NANA lands to complete the initial five-spot pattern (five producers on equidistant well spacing), with a re-drill of an existing well, NB-01, possible as the fourth well in the program. Each of the wells will be hydraulically fractured in four or five stages and de-watered.
No stabilized production until late spring ‘07 The division said stabilized gas production isn’t expected before late spring 2007, so the remainder of next year “will be required to definitely evaluate the true production potential of the wells,” with much of that year “dedicated to production testing and data analysis.”
If Teck Cominco gets positive results in 2007, exploration on state acreage would begin in 2008 with drilling of up to six stratigraphic core holes. Production testing will be continued at the original five-spot location to access decline rate.
A first-stage feasibility study will be started in 2008 to determine development costs, number of wells required for commercial production, development schedule and permitting.
A second five-spot production test is planned for 2009 and the feasibility study begun in 2008 will be completed. The division said a full development is expected to take 24 to 36 months for permitting and engineering.
Project engineering would be completed in 2010 and permitting would continue, along with extended production testing at the second five-spot.
With permitting complete in 2011, a go/no-go decision could be made, with construction of roads and drill pads scheduled for the spring and summer and development drilling expected to start during the year.
Uncertainty, challenges of developing resource The division said Teck Cominco intends to use a “learn as you go” approach because of “the uncertainty and challenges associated with developing this resource.”
Shale gas has not been proven commercial in Alaska “and challenges include the uniqueness of the resource, the remoteness of the location, the lack of infrastructure for gas development, the lack of support services in the region (North Slope services cannot access this region and service equipment must be barged in from outside Alaska), and the narrow summer barge window. The commerciality of the resource is very much uncertain,” the division said.
Because of the uncertainty, general work plans are such that each year’s work plan “can be developed based on the prior year’s results,” with data gathering a key objective of the unit’s initial plan of exploration.
The division said the initial plan of exploration provides Teck Cominco flexibility and five years to do the work and studies “so that a decision point regarding commercialization can be reached. This five-year term and flexibility are needed in the initial POE because of the challenges as described, the uniqueness of the resource (first of its kind for the State of Alaska), and the ‘learn as you go’ approach planned” by Teck Cominco.
The division said the company is making a “considerable investment to attempt to realize the potential benefits associated with developing this challenging and unique resource,” an investment justified by Teck Cominco’s position as operator of Red Dog and the cost of power at the mine.
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