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Explorers 2011: Apache eyes overlooked Cook Inlet oil After North Sea, Egypt successes, Houston independent believes Alaska could be next revived basin Eric Lidji For Petroleum News
When Apache Corp. arrived in Alaska in July 2010 many believed the independent heralded the future of exploration and production the Cook Inlet basin, but early work of the Houston company suggests Apache is seeking an alternative version of the past.
The Cook Inlet region started out as an oil exploration play, culminating in the discovery of the Swanson River oil field in 1957, but the region quickly became an important natural gas basin as companies found numerous shallower gas fields in the search for oil.
With the discovery of the Prudhoe Bay oil field on the North Slope in 1968, exploration dollars moved to northern Alaska, but now, 54 years after the discovery of Swanson River, Apache plans to conduct the oil exploration that never took place in the Cook Inlet region in the belief that it can discover millions of overlooked barrels from the basin.
Apache is kicking off a three-year 3-D seismic campaign across the Cook Inlet basin, but could start drilling as soon as early 2012 based on seismic information gathered to date.
Although declining natural gas production and deliverability in Southcentral is a pressing concern for utilities, oil production in the region is also falling. The region produced 83 million barrels at its peak in 1970, but less than 5 million barrels per year in recent years.
Oil is also the more valuable commodity. And, just like natural gas, there is a hungry local market for crude oil: the Tesoro Alaska Corp. oil refinery in Nikiski is currently supplementing local supplies with imports from foreign sources to meet local demand.
On top of that, Apache is primarily an oil company.
Apache earned a reputation as an innovative explorer through its work at international oil prospects: increasing estimates of the oil in place at the Forties Oil Field in the North Sea — the largest discovery in the history of the United Kingdom — by 800 million barrels, and increasing oil production from the Western Desert of Egypt by 16 percent in 2010.
Success at aging fields Because of that history of extending the life of older fields, Alaska perked up as soon as speculation mounted in mid-2010 that Apache officials were sniffing around the state.
That speculation and the excitement around it were bolstered by the fact that Apache was on a buying spree, spending $10 billion on acquisitions over the previous decade.
The speculation began after Apache formed a local business unit and executives attended a technical conference in Anchorage about Alaska geology. While in town, those executives also spent time talking to officials from Alaska Department of Natural Resources about topics beyond the scope of the technical conference. The speculation increased after news broke that Apache made an offer to buy Cook Inlet assets from Escopeta Oil and other leaseholders in the region, and hit a fever pitch when London’s Sunday Times published a story, based on an anonymous source, claiming that BP plc planned to sell “stakes in its Alaska oil fields” to Apache for $10 billion to $12 billion.
That sale seemed possible at the time because BP, struggling through the aftermath of a major oil spill in the Gulf of Mexico, said it would sell some assets to raise cash.
That sale ultimately didn’t happen.
Instead, Apache arrived in Alaska in a more unusual fashion, buying nearly 200,000 acres from independent investors including Dan Donkel and Samuel Cade, in July 2010.
The leases covered a huge area. The acreage went as far north as Wasilla and as far south as Anchor Point, and included both the west and east side of the Inlet. Over the following year, Apache more than quadrupled its holdings through lease sales and acquisitions.
The company spent $1.2 million on nearly 63,000 acres in an Alaska Mental Health Land Trust lease sale in December 2010, included leases west of Point Mackenzie, the onshore area around Nikiski and between Kenai and Soldotna. In June 2011, Apache spent nearly $9 million on some half a million acres in a State of Alaska lease sale. That acreage included offshore leases east of the Kitchen Lights unit and North Cook Inlet unit, onshore leases along the Susitna River north of Cook Inlet, onshore leases near Bachatatna Creek on the west side of Cook Inlet and leases around Sterling and Kasilof.
Apache also picked up the Cosmopolitan prospect, a known oil accumulation Pioneer Natural Resources relinquished earlier in the year. Alaska’s Division of Oil and Gas placed special bidding terms on those three leases because of their known prospectivity, making both sales among the most profitable ever in the region. Now, Apache says it holds some 800,000 acres in Alaska, the most of any leaseholder in the Cook Inlet.
Ramping up exploration In preparation for A year-round 3-D seismic acquisition across much of the Cook Inlet basin, Apache’s announced a 2-D seismic program to test a new nodal technology. The survey covered onshore target up to 20,000-feet deep, offshore targets and “transition zone” targets. Apache ran two seismic recording systems side-by-side, a conventional recorder and the nodal recorder, a coffee-can-sized wireless unit.
Those tests proved encouraging.
“So we tried it. It worked,” Lisa Parker, president of Parker Horn Co., Apache’s contract representative in Alaska, told Petroleum News after the June lease sale.
As a result, Apache launched a three-year 3-D seismic program from the Susitna Flats to Anchor Point that involves marine work from April to November, transition work as the ground freezes but before sea ice arrives, from September to December and from March to May, depending on sea ice, and onshore work from September to April. This year, the company plans to cover a 1,050 square mile area on the west side of Cook Inlet.
But Apache is also ready to drill, CEO Steven Farris said in August: “It’s an exploration play but the guys have wowed me enough for me to believe that it’s a real opportunity.”
As a result, the company could drill as soon as early 2012, Ferris said.
Where its initial drilling will take place remains unknown, but Apache holds acreage in several promising fairways in Cook Inlet, according to Robert Swenson, director of the Alaska Division of Geological and Geophysical Surveys.
Those include Cosmopolitan, the region around the North Fork unit and the offshore region east of North Cook Inlet and Kitchen Lights, Swenson said. He surmised that Apache is going after “more subtle” structures in the Mesozoic source rocks than companies could identify with seismic technology in the 1960s. “There is a lot of playing room between the big, big structures,” Swenson told Petroleum News in July 2011.
Alaska is now waiting to see where Apache will decide to play first.
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