Division of Oil and Gas tackles reservoir development at Polaris

Lease owners argue technical details of confidential data covering viscous oil satellite area on west side of Prudhoe Bay unit

Kristen Nelson

PNA Editor-in-Chief

The Division of Oil and Gas has become concerned that well-by-well development (so-called “tract operations”) could be harmful to the Schrader Bluff reservoir on the western side of the Prudhoe Bay unit, and has told lease owners that the state may order production from two wells to cease if owners cannot reach agreement on commercial arrangements.

Development drilling began at the formation in 1997, and two wells have been testing production. The 1 SB and 2 SB wells were spud in late 1997, both from existing pads, the 1 SB from S pad and the 2 SB from W pad.

The Schrader Bluff is a shallow, viscous oil that is also produced at Milne Point, and is analogous to the West Sak formation at the Kuparuk River unit. In 1997 participants in the Prudhoe Bay unit Schrader Bluff evaluation were ARCO, BP, Chevron, Exxon, Mobil and Phillips.

The Division of Oil and Gas approved tract operations for the 1 SB and 2 SB wells in November 1997. The bottomhole for the 1 SB is in state oil and gas lease ADL 28258 and the bottomhole for the 2 SB is in lease ADL 28263.

Current owners of the 2,560 acre lease ADL 28258 are: Phillips Alaska Inc. (36.5 percent); Exxon Mobil Corp. (35.8 percent); BP Exploration (Alaska) Inc. (26.7 percent); Forest Oil Corp. (0.02 percent) and Mobil Alaska E&P Inc. (1 percent).

Lease ADL has two segments, each 1,280 acres. Segment 1 is currently owned by Phillips Alaska (36.5 percent); ExxonMobil (35.8 percent); BP Exploration (Alaska) (26.7 percent); Mobil Alaska E&P (1 percent); and Forest Oil (0.02 percent).

Segment 2 is owned by Chevron U.S.A. Inc. (33.33 percent); Phillips Alaska (24.33 percent); ExxonMobil (23.88 percent); BP Exploration (Alaska) (17.78 percent); Mobil Alaska (0.67 percent); and Forest Oil (0.01 percent).

Wells renamed

The S-200 was completed in January 1998 and tested May-December 1998.

In 1999, funding for the work was coming 5 percent from ARCO; 24 percent from BP; 6 percent from Chevron; 5 percent from Exxon; 30 percent from Mobil and 30 percent from Phillips.

In September 1999, operator BP told the Division of Oil and Gas that a participating area application had not yet been filed due to uncertainties of production from the Schrader Bluff formation.

In October 1999, the division approved evaluation and pilot production of the S-200 and W-200 as Schrader Bluff appraisal wells for 12 months but said it would require a participating area application to be filed by October 2000.

Polaris name selected

Chevron told BP in November that it wanted both the S-201 and the W-201 wells drilled and said it understood that both “have been technically approved by all the parties for at least two months.”

Chevron requested delay of an application for a participating area until an application for the entire area, both S pad and W pad, could be submitted.

“Chevron strongly believes that there is no technical justification for separating the S-Pad and W-Pad developments. We will oppose any participating area application that initially excludes the W-Pad area and/or excludes Chevron from participating in the S-Pad area,” the company said.

Chevron also said in November that over the past two years it has raised concerns about the Prudhoe Bay facility sharing agreement, and said that the recent Prudhoe Bay alignment agreements among BP, ExxonMobil and Phillips “have magnified these concerns. To date, these concerns have been ignored.”

Chevron said it has not approved the Aurora facility sharing agreement and “requests that BP, as operator, enter into facility sharing negotiations with Chevron as soon as possible.”

Chevron said it has been a “full participant in all cases for appraisal and studies of the Polaris satellite to date” and said it is BP’s responsibility as operator to obtain Chevron’s approval of any Polaris participating agreement application prior of submittal of such an application to the state.

State concerned about reservoir

In December, BP filed an application for a Polaris participating area for the S pad area only and in January, Chevron notified the state of its opposition to that application.

In February, BP requested continued tract operations on W-200 and W-200, and initial tract operations for several wells not yet drilled: W-201, S-201, S-213 and S-216.

In February, new Division of Oil and Gas Director Mark Myers told BP that the state would allow continued tract operation production from the S-200 and W-200 wells only until May 21, and would allow production from the four proposed wells only for three months from the start of production.

Myers said the division wants to evaluate a complete participating area application and Chevron’s concerns. He said the division requires sustained production be under an approved participating area “and believes continued tract operations may be detrimental to the development of the reservoir.”

In March, Myers told BP and Chevron that the division expected a participating area application to include both S pad and W pad areas since both S-200 and W-200 are in commercial production.

The uncertain future of W pad and the W-200 well, Myers said, “has only been compounded by the Feb. 21, 2001, request of the Aligned Parties and Chevron for approval of an extension of the ongoing W-200 tract operations and initiation of W-201 tract operations…” The state, Myers said, wants to see both short-term and long-term exploration and development plans for the W pad area.

Enter the attorneys

Chevron has much, but not all, of the data which exists on the S pad and W pad Schrader Bluff formation and an attorney for Chevron asked the state to give Chevron access to confidential data which BP has provided to the division. The Alaska Department of Law responded that the division’s obligation to keep certain documents confidential is “absolute.”

BP’s attorney told the state that the participants are willing to provide Chevron “access to the data it seeks on commercially reasonable terms.”

BP has told the state that the basis for the disagreement rests on the technical data, which BP said establishes that multiple reservoirs underlie the Schrader Bluff/Polaris area. W pad, BP said, is a “separate and distinct reservoir” from the reservoir in the S pad area. Since S pad and W pad are “not part of a single reservoir,” BP said, the parties do not agree with Chevron that the areas should be combined in a single participating area.

Hearing scheduled

“The hearing is intended for questioning of technical persons by technical persons. Attorney questioning and objections are to be kept to a bare minimum,” the state said in an April 25 letter to attorneys for the two sides.

Division of Oil and Gas Director Mark Myers is hearing officer and the hearing panel consists of state geologists, geophysicists and engineers.

Division issues interim Polaris decision

Kristen Nelson

The division said it was more in agreement with Chevron, which wanted an even larger area included, and less in agreement with BP, Phillips, ExxonMobil and Forest, “the Applicant,” who wanted only the northern area included.

A hearing was held May 4, and on May 11 the division told the parties that while a final decision may not be ready for several months because of the complex and technical nature of the dispute, a rapid decision is necessary to facilitate immediate development at Polaris, especially since production authority for some wells already in production expires May 21 without a participating area.

The division said that Chevron argued that the Schrader Bluff formation sands “constitute a single continuous multi-layered reservoir with localized compartmentalization in some but not all areas” while the applicant argued that there are multiple reservoirs separated by one or more impermeable faults in both the northern and southern areas, with three or more segments in the northern area, each with up to 10 separate sands. “The same reasoning,” the division said, “would have the southern area’s four segments containing up to 40 reservoirs. The Applicant offers its consent to the combination of multiple northern ‘reservoirs’ into a single participating area, but would not extend its consent to any of the southern ‘reservoirs.’ “

The division said its final decision will conclude that a single participating area is appropriate for a number of reasons, among them that the applicant has failed to prove there is more than one reservoir; has used a definition of reservoir inconsistent with its prior use of the term and inconsistent with the use of the term in the Prudhoe Bay unit agreement; and that restricting the Polaris participating area to the northern area “would hinder optimal reservoir management.”

Unless the parties unanimously agree otherwise, the division said that for five years participating area expenses and production will be allocated on the basis of oil originally in place, “using the most likely case volumes in the consensus subsurface report.” Likewise, for two years, the existing Schrader Bluff interim facility sharing agreement terms will be applied to Polaris reservoir production.

The division said this is not a decision which can be appealed, but “is intended only as an accommodation to the parties.”