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State OKs Placer unit expansion Alaska official initially had denied request; unit owner ASRC Exploration must agree to drill new well, post performance bonds Wesley Loy For Petroleum News
Alaska Oil and Gas Director Bill Barron has conditionally approved an expansion of ASRC Exploration LLC’s Placer unit, reversing an earlier denial.
Barron approved the expansion after the state’s natural resources commissioner essentially told him he had to.
The Nov. 4 decision gives ASRC Exploration more time to conduct drilling in the Placer unit. It also requires the company to post $5.4 million in performance bonds, which will be forfeited to the state if new deadlines are missed.
Oil discovery in 2004 ASRC Exploration is a subsidiary of Arctic Slope Regional Corp., an Alaska Native corporation based in Barrow.
The Placer unit is on the North Slope, southwest of the ConocoPhillips-operated Kuparuk River unit, one of the nation’s biggest oil fields. ASRC Exploration is the sole working interest owner in the Placer unit.
Barron originally approved formation of the Placer unit in September 2011. The 1,480-acre unit took in portions of four state leases. Areas severed from the four leases amounted to 7,288 acres.
The unit takes in an exploratory well ConocoPhillips and its partners drilled in 2004. The Placer No. 1 well found an oil-bearing reservoir in the thin Kuparuk C sand, but no production test was done. After drilling another well, the Placer No. 2, the partnership decided the reservoir was uneconomic and the leases were dropped.
ASRC Exploration would acquire the leases in the 2006 lease sale.
Combining leases into a unit can carry certain benefits, such as extending the life of leases that otherwise might expire. In exchange for a unit designation, the state generally expects drilling or other work commitments.
‘A fluid process’ With the Placer unit approval, ASRC Exploration faced a June 30, 2013, deadline to either re-enter and test the Placer No. 1 well, or drill and log a new exploratory well.
On Aug. 17, 2012, the company applied to expand the unit by adding the 7,288 acres severed from the original leases. ASRC Exploration also asked to extend the well test and drilling deadline by a year.
Barron said no, finding it was unnecessary and against the public interest to expand the unit before the initial work commitment was met. (Barron issued his denial on Jan. 14. ASRC Exploration failed to re-enter the Placer No. 1 or drill a new well by June 30.)
The company appealed to DNR Commissioner Dan Sullivan, who on Sept. 24 remanded the matter back to Barron with directions to reset drilling and other requirements for unit expansion.
In his remand decision, Sullivan (who finished his tenure as DNR commissioner on Sept. 24) wrote: “While it is critical that the State hold companies to their commitments in order to advance the State’s interests in a timely fashion, we also recognize that resource development is a fluid process, changes can occur, and contingencies arise.”
New drilling, bonding requirements Sullivan’s decision noted that ASRC Exploration and another company, Brooks Range Petroleum Corp., met on Sept. 12 with Division of Oil and Gas officials and presented “a unified position” regarding work commitments for the greater Placer area.
“BRPC brought a broader dataset and geological and geophysical interpretations of the area, including resource potential outside the existing unit, to support a proposed unit expansion,” the Sullivan decision said.
Furthermore, the decision said, ASRC Exploration “has a desire to farm out its lease interests in the greater Placer area to BRPC and BRPC in turn has a desire to farm in. The result of this transaction would be a new well drilled in 2014. ... It is in the State’s interest to see a new exploration well that assesses the resources of multiple leases this winter.”
Under Barron’s unit expansion approval, the requested 7,288 acres will be added to the Placer unit on several conditions.
First, ASRC Exploration must commit to drill and test a well before June 30, 2014. By the same date, it must flow test the Placer No. 1 well and conduct a transmissibility test between the two wells.
The company also must post two bonds totaling $5.4 million, and show a signed farm-out agreement.
The conditions are necessary given ASRC Exploration’s “prior failure to comply with work commitments,” the Barron approval said.
He gave the company until Dec. 15 to take the deal.
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