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ASRC appealing Placer ruling Says Division of Oil and Gas is making a major change in policy by decoupling exploration, unitization; asks for reconsideration Eric Lidji For Petroleum News
ASRC Exploration LLC is asking the state to reconsider its decision not to expand the Placer unit and not to extend the plan of exploration associated with the North Slope unit.
The exploration arm of the Alaska Native corporation is charging the Division of Oil and Gas with making a “marked change in state policy” by taking the view that “unitization is not needed for exploration both in the Cook Inlet area as well as on the North Slope.”
ASRC Exploration called this change “misdirected,” saying it assumes that a hypothetical lessee in the future would be more aggressive in exploration than a current lessee.
“The Division’s belief that exploration on the North Slope will move ahead aggressively without unitization is mistaken; an operator either requires more time on its leases to explore and delineate or they require a unit to hold the leases to allow for exploration and delineation,” ASRC Exploration President Teresa Imm wrote in a February appeal.
With regard to Placer, specifically, ASRC Exploration said the state acknowledged early on that the unit would require expansion to reach its minimum commercial reserves size, but said it delayed the decision until after ASRC Exploration completed a seismic survey.
Because of the smaller unit size, ASRC Exploration said any drilling at Placer would essentially create a “twin” of the existing Placer No. 1 well, and would not provide enough information to effectively delineate the prospect for commercial development.
The Placer unit is just west of the Kuparuk River unit.
The Department of Natural Resources has yet to issue its decision on the appeal.
Extension request Because ASRC Exploration could not secure a drilling rig for the 2013 exploration season, the company also asked for additional time to complete its work commitments.
Even though the company made the requests separately, the Division of Oil and Gas bundled its decisions. As such, by the time the state issued its ruling denying both, ASRC Exploration said it no longer had enough time to complete its work commitments.
The unit agreement gave the company until June 30, 2013, to meet its commitments.
The Placer unit is currently in default and the expansion leases will expire in January.
Should the expansion leases expire, ASRC Exploration said, it is unlikely another company would acquire and develop the leases without access to the entire prospect.
The five-year terms of the leases at Placer made it difficult if not impossible to meet work commitments, Imm wrote. It took ASRC Exploration almost two years to negotiate a purchase of the existing Placer No. 1 wellbore and another year to acquire a seismic license.
Additionally, Imm wrote, a joint venture between Brooks Range Petroleum Corp. and the Alaska Industrial Development and Export Authority to build production facilities at the nearby Mustang prospect “has the potential to significantly change commercial thresholds at Placer” because AIDEA wants to promote the facilities to small operators.
A decade of work ASRC Exploration originally requested an 8,769-acre unit covering four North Slope leases, but in September 2011 the Division of Oil and Gas approved a unit covering just 1,480 acres of those leases. Last summer, ASRC Exploration asked to expand the unit to include the originally requested acreage, saying recent seismic interpretation “indicates that the Kuparuk sand at Placer extends well beyond the current unit boundaries.”
The Division of Oil and Gas segregated the portions of the leases outside the unit, and extended the primary terms to Jan. 31, 2014, from the original date of Dec. 31, 2012.
Specifically, ASRC Exploration said the Placer sand appeared to merge with the Appaloosa prospect operated by Brooks Range Petroleum Corp. farther to the south.
The company also asked for more time to complete its work commitments at Placer.
The Division of Oil and Gas denied the request, saying ASRC Exploration could complete its work commitments without the expansion. In his ruling, Director Bill Barron said the public interest would not be served by “six fold expansion of the unit before (ASRC Exploration LLC) has met the major initial work commitment upon which the Placer Unit approval was based,” namely re-enter Placer No. 1 or drill a new well.
The Placer prospect was originally within the Kuparuk River unit.
ASRC Exploration farmed-in to the prospect in early 2004 and picked up a 35.7 percent working interest on two exploration wells — Placer No. 1 and Placer No. 2 — that operator ConocoPhillips drilled at the prospect in February and March 2004, respectively.
The leases contracted out of the unit in June 2005. The leases ultimately expired, and ASRC Exploration acquired the prospect in a 2006 North Slope areawide lease sale.
ASRC Exploration became the operator of the Placer No. 1 wellbore in June 2010, applied for a unit in January 2011 and acquired a seismic license in June 2011.
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