Providing coverage of Alaska and northern Canada's oil and gas industry
November 2004

Special Pub. Week of November 30, 2004

THE EXPLORERS 2004: BP investing in innovation

North Slope operator opts out of exploration game, focuses on developing known conventional and heavy oil resources, with eye on future gas

Kristen Nelson

Petroleum News

While no longer an exploration player on Alaska’s North Slope, BP Exploration (Alaska) remains a dominant developer as it targets known light oil accumulations around its existing infrastructure, and puts what it calls “risk dollars” into technology development aimed at producing at least a portion of the slope’s 15 billion barrel heavy oil resource.

Steve Marshall, named president of BP Exploration (Alaska) in September 2001, told an audience in January 2002 that BP’s recent success on the slope hasn’t been from exploration: over 10 years BP found and commercialized 160 million barrels from frontier exploration: 16 million barrels a year at a cost of $40 million a year.

“In the same period,” he said, “we’ve added almost 900 million barrels of extensions in our existing fields — five times that reserve. That’s where we’ve had the greatest success. And the exploration successes we have had are from satellites — in and around Prudhoe, Milne, Kuparuk. That’s what we’re going to continue doing.”

BP sold off what it could of its exploration acreage in 2003 to Anadarko Petroleum, Armstrong Resources and ConocoPhillips Alaska and dropped the remainder, with the exception of that in the Arctic National Wildlife Refuge, which was never put up for sale.

Five billion barrels

Marshall reinforced the message in January 2004.

BP has “5 billion barrels of known oil and gas in our Alaskan reserves,” a resource that will continue to attract capital investment “for many years to come,” he said, with an investment of more than $650 million in Alaska in 2004, including more than $200 million in double-hulled tankers.

And, he said, the company will “drill more than 100 new penetrations in fields we operate” on the North Slope, including 19 viscous wells. While the company hasn’t had any high-profile projects since Northstar, “our focus on drilling generates new production and new state revenues today — not five, 10 or 15 years from today.”

The company’s ongoing investments have resulted in a 13 percent increase in BP’s production over the last two years, he said, a production level the company expects to sustain for several years, and over that same two-year period the company has reduced its “total cash cost by more than 10 percent.”

Company officials have stressed the importance of reducing its costs in Alaska to make investment in the state competitive with other BP opporetunities.

Drilling expected to continue

BP’s group vice president for technology, Tony Meggs, said in January 2004 that in the 1970s original Prudhoe Bay field development called for 500 wells. “We’ve already drilled 1,300 penetrations and plan another 200. Ten years from now I predict we’ll have another 200 to drill, regardless of all the drilling we’ll do in the meantime.”

Of the 5 billion barrels, about 2 billion is proven, and about half of it is light oil.

“To transform the potential into production,” he said, BP must continue “to research ways to produce viscous oil competitively. And we must move North Slope natural gas to market.”

On the viscous side, BP completed a $180 million viscous project at Milne Point, Meggs said, and the Prudhoe owners will spend $500 million on the Orion project over the next four to five years.

Viscous breakthrough

BP made a significant breakthrough in viscous development when it drilled a single horizontal well on the North Slope in 1999, and since then new drilling and completion technology have tripled productivity from the shallow viscous accumulations, Ed LaFehr, BP Exploration (Alaska)’s Milne Point asset manager said in April.

Viscous oil accounts for a third of BP’s North Slope resources, he said, and will bridge the gap to gas.

While BP has “essentially shut down exploration,” it is “still spending risk capital — but we’ve shifted it from exploration over into the viscous arena and other areas … but we’re spending $400 million plus or minus inside the fields on things that are challenging, that require enormous innovation and a lot of scientific and engineering envelope pushing off that,” LaFehr said.

BP has spent more than $300 million on viscous since 2000, he said, “largely developing S pad at Milne Point,” and in 2004 will spend more than $100 million as its share of more than 30 (viscous) wells, some 13 of those at Milne Point, 15 or so at Prudhoe Bay and others at Kuparuk.”

With development success at S pad in Milne, “if we start seeing signs that the next evolution of technology works, and the economics are there … there are hundreds of millions of dollars over the next decade that we would spend…”

Horizontal wells and multi-laterals have been successful in drilling viscous accumulations, he said, but there are new challenges: long-rate delivery; issues around how water flood in the field is run; understanding the reservoir; and how sand is managed through the facilities.

Sand management is part of issues around “cost of operations and operability (that) have started to creep in,” LaFehr said, with something like 35 barrels of sand a day now being trucked off S pad (viscous oil reservoirs aren’t well consolidated, so sand, bits of the reservoir, is produced along with the oil.)

LaFehr said they knew there would be sand, but “it’s a bit more challenging than we had thought.”

Kuparuk approved; Liberty MOU signed

This August, BP and Kuparuk field operator ConocoPhillips, said they have approved the first large-scale development of viscous oil at West Sak: a $500 million two-pad, 44-well program which will increase West Sak production to approximately 45,000 barrels per day by 2007.

Expansion of Drill Site 1E is expected to add about 10,000 barrels per day, with first production expected in 2004.

And Liberty, BP’s discovery offshore east of Endicott, may be moving forward.

In late September, BP signed a memorandum of understanding for development plan and permitting issues with the U.S. Minerals Management Service, from whom BP holds the Liberty leases.

And field operator ExxonMobil and working interest owners, including BP, have yet to come up with a commercial plan to produce the high-pressure condensate at Point Thomson, farther east, adjacent to ANWR,

Focus on oil in place

Company spokesman Daren Beaudo recently summarized what BP is doing in Alaska this way: “BP is focused on oil in place… our commitment and … our sweat equity and all our brain power is going to trying to find these pockets… to share information, to apply learnings, to apply technology…

“Viscous oil fills a part of the decline wedge in North Slope production until we get to what we think is Alaska’s future, and that’s gas sales down the line…”

BP is putting both money and effort into viscous “to economically produce this important (viscous oil) resource,” Beaudo said. “We’re not just sitting here, we’re not just drawing down (and) we’re not just resting on out laurels. We’re putting a lot of time, money and effort into continuing to produce tougher and tougher oil.”

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