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THE EXPLORERS 2005: Sister ’stars‘ find another opportunity Alaska-based independent looks to drill at its new Dewline Deep prospect west of Point McIntyre Alan Bailey Petroleum News
Sister companies Winstar Exploration LLC and Ultrastar Exploration LLC continue to prove that there’s potential for small operators on Alaska’s North Slope. Winstar spud its first well, the Oliktok Point State No. 1 in June 2003. That well came up dry but the companies have continued their exploration efforts. And now Ultrastar has found another prospect, the Dewline Deep, west of Point McIntyre.
“We see potential at several levels — the Kuparuk level and the Sag/Ivishak level,” Jim Weeks, managing member of both Winstar and Ultrastar, told Petroleum News. “We think we can drill it from Point McIntyre No. 1 drill site with a deviated well.”
Weeks said that overlapping groups of investors own the two companies — Winstar was founded in 1997 and Ultrastar was founded in 2003. The companies own two groups of leases, one west of Point McIntyre in the central North Slope and the other on the eastern North Slope between the Badami and Liberty fields.
The companies have pioneered negotiating the potential use of existing North Slope facilities for handling production from a new, third-party field. In fact, when planning to drill the Oliktok Point well Weeks negotiated a deal that encompassed everything from exploration drilling to eventual production through the nearby Kuparuk facilities — Weeks saw it as essential to understand the commercial arrangements for producing and selling oil before his company could commit any money to drilling a well. And without the use of existing facilities it would be uneconomic to develop the modest sized accumulations that Winstar and Ultrastar seek.
But the negotiations with the Kuparuk participating area owners took nearly three years to complete, in part because the large companies saw the negotiations as low priority, Weeks thinks.
“(But) they’re clearly willing to put agreements together to enable a little guy like us to do something up there. It just took us a long time to put the deal together at Kuparuk,” Weeks said in May 2005.
One difficulty turned out to be that the Kuparuk deal required 100 percent agreement with all Kuparuk participating area owners, ConocoPhillips, BP, Unocal, Chevron and ExxonMobil. And then there were complex negotiations regarding compensation for backouts, the volumes of deferred facility owner production that result from accommodating third-party production.
Charter for Development Weeks sees a document called the Charter for the Development of the Alaskan North Slope, signed between the State of Alaska, BP and ARCO in 1999, as critical for small companies wishing to explore on the slope (ConocoPhillips inherited ARCO’s commitments under the charter). The charter obligates BP and ConocoPhillips to provide access to their North Slope facilities for third-party satellite fields on “reasonable commercial terms.” And there’s a requirement for binding arbitration in the event of stalled negotiations.
“Without the charter we wouldn’t even be here,” Weeks said in 2004.
The charter also requires BP and ConocoPhillips to purchase oil from small producers, thus enabling these producers to avoid the need to establish costly shipping arrangements for their oil.
Another provision of the charter, a requirement that BP and ConocoPhillips make seismic data available for license, has proved vital for Winstar and Ultrastar. It’s simply too expensive for a small company to shoot 3-D seismic over a small lease area on the slope, Weeks said.
And this 3-D seismic proved to be the critical factor in finding the new Dewline Deep prospect — Ultrastar obtained some additional seismic from the Prudhoe Bay owners to pinpoint the prospect. That seismic increased the coverage from eight square miles to 23 square miles, a critical factor in tying seismic times to depths under the permafrost.
“Eight square miles wasn’t really enough to tie the seismic into existing wells,” Weeks said. “We were fortunate that the PBU owners were willing to license us a bigger area …We got that, had it analyzed and we do have a prospect that we’re anxious to evaluate with a drill bit.”
But don’t expect another major oil field. Although the prospect shows good potential, the oil accumulations are likely to be modest in size — the drilling isn’t going to find 100 million barrels, Weeks said. “At Gwydyr Bay the Ivishak has notoriously small fault traps.”
Weeks said that the preferred drilling option for Dewline Deep is to re-enter and sidetrack a well that ARCO drilled in 1991. So Ultrastar has been trying to establish terms of access to that well bore, in addition to negotiating access to the Point McIntyre No. 1 drill pad.
“If we can’t get access to the well we’re prepared to drill a separate well, but I think the surface location still needs to be on the Point McIntyre No. 1 drill pad,” Weeks said.
Use of the Point McIntyre drill pad and the associated permanent road infrastructure would greatly simplify the logistics of drilling, by avoiding the need for ice roads and an ice pad. However, BP does have a self-imposed restriction to only drill from the pad during the winter, when the Beaufort Sea is frozen over — the drill pad is on the coast, Weeks said.
In addition to drill pad access, Ultrastar will need to process oil from the prospect through the Lisburne production center. Weeks thinks that there is sufficient capacity at the Lisburne center to process Ultrastar oil but the company needs to agree on issues such as backout procedures with BP. Ultrastar would like to drill at Dewline Deep during the 2005-06 winter but delayed negotiations regarding access to drilling and production facilities seem set to push the schedule back.
“They’re coming along — it’s just a question of priorities,” Weeks said. Eastern North Slope leases Evaluation continues on the seismic for Ultrastar’s leases towards the eastern end of the slope.
“We’ve probably spent $400,000 over there acquiring a 3-D license, getting it evaluated, getting some older 2-D data, getting it evaluated and it’s still under evaluation,” Weeks said.
However, any development in that area will be contingent upon reducing the tariff rates for the Badami pipeline by increasing throughput in the line, Weeks said. The Badami field has been in warm shutdown in recent years, although BP has been trying to restart the field on a trial basis since mid-September 2005. So, unless Ultrastar makes a huge find, viable tariffs will probably depend on fields such as Liberty or Point Thomson coming on stream.
“Anything there would have to be done in conjunction with BP’s Liberty (field),” Weeks said.
Meantime, Weeks hopes that negotiations regarding the Dewline Deep prospect can speed up.
“It takes two to tango,” he said.
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