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Kuvlum, other discoveries may be key to successful lease sale MMS expecting bidders, but companies are keeping intentions close to the vest Petroleum News Houston Staff
With three months to go and an offshore lease sale featuring known discoveries and attractive government incentives to drill, just how industry might respond with its checkbook to proposed Beaufort Sea Oil & Gas Lease Sale 186 remains largely a mystery.
Even after MMS meetings with prospective bidders in Houston, Dallas, Denver and Calgary, “a lot of them are just keeping their cards close to the vest,” said John Goll, Alaska regional director for the U.S. Minerals Management Service.
However, Goll said in an interview with Petroleum News the week of June 9 that he has done what he can to regain the trust of a suspicious industry that was pretty much ignored by the Clinton administration when it came to federal lease sales offshore Alaska.
“We expect some bidders, but it won’t be like the old days,” Goll said. “In a sense, it’s going to be hard to gauge. Companies are sort of saying prove it that we can pull a sale off again that would allow them to plan better for the future.” Three recorded discoveries Nevertheless, MMS said three recorded discoveries — Kuvlum, Hammerhead and Sandpiper — could be the ticket to a successful oil and gas lease sale offering some 1,850 blocks encompassing about 9.7 million acres offshore northern Alaska.
The leases making up the three discoveries were returned to MMS by their former owners, obviously because they were considered to be non-commercial at the time. But they may contain millions of barrels of reserves that possibly could be developed with new ideas and technologies and additional drilling to prove them up.
Despite its remote location in deeper waters of the eastern portion of Beaufort Sea planning area, the Kuvlum prospect could be of particular interest to explorers on the hunt for an elephant-size field.
Kuvlum was delineated with three wells by original owner ARCO Alaska and initially thought to contain more than 1 billion barrels of recoverable oil reserves. That bullish scenario never panned out for ARCO, which gave up the leases to other companies that eventually turned them back to MMS. Kuvlum a shot in the dark MMS’ official reserve estimate for Kuvlum ranges from 100 to 300 million barrels. But the agency says the subsurface is so heavily faulted that it will require additional drilling and 3-D seismic to figure out Kuvlum’s true potential, said Rance Wall, MMS Alaska regional supervisor of resource evaluation.
“We just don’t know,” he said. “There are too many faults … and until you cross every one of those fault blocks there’s no good way to do it. I mean it could range anywhere from 50 to 400 million barrels. Who knows? It’s a shot in the dark.”
Hammerhead, located roughly 20 miles west of Kuvlum, was delineated with two exploration wells and also would require additional drilling to measure its full potential, MMS said. For purposes of the lease sale, however, the agency says the field could hold 100 to 200 million barrels of oil.
The Sandpiper field, situated well west of Kuvlum and Hammerhead, was delineated with two exploration wells and is said to contain about 12 million barrels of oil and condensate.
In addition, the Mukluk, Antares and Phoenix wells encountered minor amounts of oil, and the Galahad well encountered minor amounts of gas and oil show, MMS said.
“The Beaufort Sea program area is an offshore extension of the proven North Slope petroleum province and the area has the same thick reservoir sands seen at the Prudhoe Bay and nearby fields,” MMS noted. 300 prospects identified In total, the agency has identified 300 prospects distributed through 14 plays within the Beaufort Sea planning area, with projections of 271 undiscovered petroleum pools and a recoverable mean estimate of 6.94 billion barrels of oil and 32.07 trillion cubic feet of gas.
MMS estimates that a mean 3.24 billion barrels could be economically recovered at $18 per barrel and a mean 1.78 billion barrels at $30 per barrel. However, with the same price scenario, the high side potential ranges from 6.64 to 7.76 billion barrels.
MMS carefully laid out its prospects and backed them up with similar royalty relief incentives that encouraged explorers to do more oil drilling in deepwater Gulf of Mexico and more deep gas drilling in the relatively shallow waters of the Gulf’s continental shelf.
In deepwater Gulf, the degree of royalty relief on initial oil barrels is based on zones of water depth, while on the shelf royalty relief is based on initial production below a geological depth of 15,000 feet with a price ceiling of $5 per million cubic feet.
In federal waters of the Beaufort Sea, royalty suspension on initial production applies only to oil and condensate. The incentive is based on distance from infrastructure rather than water depth. Also, the incentive would be removed if oil prices exceeded about $32.35 per barrel based on 2002 dollars.
“There are some good prospects, we’re giving them 10 years (to drill) and we’re giving them pretty good terms,” Goll said. “If people don’t come this time, the potential is still going to be there in the future.”
If MMS decides to hold Lease Sale 186, a final notice would be sent out around mid-August, Goll said. The sale is tentatively scheduled for Sept. 24.
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