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THE EXPLORERS 2005: Anadarko seeks the big plays in Alaska Company looking for ‘anchor opportunities’ in remote areas to form building blocks for the future Alan Bailey Petroleum News
A commitment to finding large, long-term prospects in remote areas of northern Alaska underlies Anadarko Petroleum’s strategy in Alaska, Greg Hebertson, Anadarko’s Alaska/Canada frontier project manager, and Mark Hanley, the company’s Alaska spokesman, told Petroleum News in September 2005. The company wants to develop large fields that can then form hubs for the development of smaller prospects.
“We’ve had a very focused type of exploration program over the years — we’re looking for primarily anchor-type opportunities,” Hebertson said. “These are opportunities that are standalone, that don’t necessarily need existing infrastructure and we feel like that’s the kind of exploration that is going to benefit Anadarko and our shareholders, as well as the state.”
Anadarko believes large oil and gas fields remain to be found in northern Alaska. And the company’s strategy has caused it to amass one of the top exploration land positions in the state.
“We’ve been in Alaska since 1993 and we’ve been continually investing in Alaska ever since that time,” Hebertson said. “… We’ve really tried to position the company for the reserves that we feel exist in the state.”
Anadarko has participated in proprietary seismic with its partner ConocoPhillips and has operated 2-D and 3-D seismic programs in the eastern North Slope and Brooks Range foothills (Also referred to as the North Slope foothills). The company has only operated two exploration wells (the Altamura well in the National Petroleum Reserve-Alaska and the Hot Ice well in the central North Slope) but has participated in approximately 35 exploration wells, predominantly in NPR-A, Hebertson said.
Remote areas and partnerships The remoteness of the areas in which the company prefers to explore drives a need to find large oil or gas accumulations.
“We’re looking for the hundreds of millions of barrels, and because they are far from infrastructure and because of the infrastructure that’s needed to bring those fields online they need to be a substantial size,” Hebertson said.
But exploring for large petroleum accumulations far from existing infrastructure entails higher than average risk.
“As you get more and more frontier you get a higher reward, higher risk portfolio,” Hanley said. To mitigate those risks, Anadarko works with partners that can share the costs, risks and rewards.
“Obviously in those types of situations you’re not going to do something 100 percent and you really have to have the right kind of partnership in place, and that’s what we’re continually trying to do is find that right partner,” Hanley said. “It’s like dating almost.”
Anadarko seeks partners that have similar exploration objectives and that can handle the commercial risks associated with operating in Alaska. The company has enjoyed a particularly fruitful relationship with ConocoPhillips Alaska (previously ARCO Alaska) that stretches back to the discovery of the Alpine field by an ARCO-operated partnership in 1994. Anadarko continues to partner with ConocoPhillips in the development of Alpine and its satellites, and the company maintains a joint venture with ConocoPhillips for exploration in NPR-A.
“We have a tremendous relationship with ConocoPhillips and enjoy having them as a partner out in NPR-A,” Hebertson said. Exploring in the foothills And the company is excited about its Brooks Range foothills partnership with Petro-Canada, announced in February 2005.
“Our recently announced joint venture with Petro-Canada I think is a good example of a good, successful relationship,” Hebertson said. “We’re very aligned technically in the (foothills) area and we see the area similarly in terms of its resource potential and our commitment to the area.”
Anadarko is operator for the exploration of more than 1.5 million acres of state and Arctic Slope Regional Corp. land in the Brooks Range foothills. The company pooled this acreage with Petro-Canada under the terms of the partnership between the two companies.
“Currently in the foothills area we’ve got proprietary 3-D seismic and 2-D seismic,” Hebertson said. “We’ve got a very deep portfolio of opportunities in the foothills. The vast majority of those are gas opportunities, but they’re not exclusively gas opportunities.”
Hebertson said that Anadarko continues to actively mature its portfolio in the foothills through geologic and seismic investigations.
“We have people doing geologic fieldwork this summer up there,” he said. “Potentially we could be acquiring some seismic … there in the future with our new partnership.” Gas line capacity needed However, drilling in the gas-prone foothills area will depend on progress with plans for a gas line from the North Slope: Anadarko needs assurances on the availability of capacity for shipping gas before incurring the significant cost of foothills drilling. The two key gas line issues are access for explorers and expandable space, Hanley said.
“Based on our current planning we’d like to be drilling in 2007 in that area,” Hebertson said. “Obviously that’s contingent upon Anadarko feeling that access issues have been rectified with respect to the pipeline … from a technical perspective we’re very comfortable with the opportunity there (in the foothills) — it’s not a technical issue by any means. It really is a regulatory issue.”
Anadarko is, however, happy with the Federal Energy Regulatory Commission’s rules for open season on the gas line.
“We were pretty pleased with how that came out — we think that went a long ways to addressing the issues,” Hebertson said.
Looking for another partner Anadarko would like a second partner for foothills exploration. However, lack of a second partner would not necessarily prevent exploration progress.
“Not having (another) partner wouldn’t necessarily preclude us from moving ahead,” Hanley said. “I think we’re happy with our current partnership. Ideally we’d like to bring somebody else in, but conceivably we could go ahead if we don’t find anybody.”
Anadarko is also looking for a partner for its Jacob’s Ladder prospect, in the central North Slope, 20 miles southeast of Prudhoe Bay. Meantime the company is unitizing the Jacob’s Ladder acreage.
“We’ve had a lot of interest in Jacob’s Ladder recently and I’m encouraged that we might be able to put something together in the next six to twelve months,” Hebertson said.
The company also has a 100 percent interest in the nearby Ayak prospect.
“Ayak is another prospect we have in the Jacob’s Ladder area that could be drilled in the near future if a partnership comes together,” Hebertson said.
The Alpine field The 430 million barrel Alpine field and the satellite fields (all part of the Colville unit) that surround it exemplify the type of opportunity that Anadarko seeks. And the performance of the Alpine field has exceeded expectations, Hebertson said.
“We’re moving forward with developments at our Nanuq field and Fiord field,” Hebertson said. “Fiord will likely be the first satellite to come on and we’re targeting the latter half of 2006 for that. And that will be followed shortly by the Nanuq discovery.”
Anadarko and ConocoPhillips have also slated the Alpine West and Lookout satellites for development — in September ConocoPhillips filed an application for development work at Alpine West.
“We’re currently in the second expansion at Alpine for capacity and we’re excited,” Hebertson said. “We feel like we’ve got enough satellite reserves and future production to keep that facility at plateau rate for the near future.”
Success at Alpine has acted as a springboard for frontier exploration west into NPR-A. The ConocoPhillips-operated partnership with Anadarko drilled the Puviaq prospect in the winter of 2003-04 and the Kokoda prospect in the winter of 2004-05. Puviaq, the westernmost well drilled in recent years in NPR-A, lies west of Teshekpuk Lake. The Kokoda drilling required a 70-mile ice road west from the current North Slope infrastructure. The wells at Puviaq and Kokoda remain tight holes.
Challenges far from infrastructure Anadarko’s strategy of exploring far from the existing infrastructure does bring its own set of challenges and risks. And as well as mitigating the risks through partnerships and a focus on big opportunities, the company has applied some creative thinking on how to operate many miles from roads or established airstrips.
In 2001 and 2002 Anadarko worked with seismic contractor PGS to pioneer some new techniques for acquiring seismic data in the foothills. For example, PGS fitted its seismic vibrator trucks with tracks rather than wheels, to improve production rates.
“It’s a unique operating environment down in that area,” Hebertson said. “There’s a lot more topography (than on the slope).”
And the company is spearheading some initiatives to reduce the costs associated with remote exploration. For example, the company thinks that staging areas at remote locations would help project economics by enabling crews to drill more wells in a season.
“We’ve approached both the state and the BLM on potentially refurbishing some of the old well sites in Alaska that could be used as staging areas where companies could come in, use the space, store some equipment there, get an early start on a drilling season,” Hebertson said. “We think that it’s something that the state could do soon in conjunction with industry to get out and facilitate some exploration in these remote areas.”
Anadarko prefers the idea of establishing staging areas to building permanent roads into exploration areas. Roads are more appropriate when it comes to developing a discovery, Hebertson said.
“We’re not opposed to roads by any means and that will certainly help in the long term,” he said, “... (but) it takes a long time to build a road. It’s extremely expensive and you don’t know where the road needs to go. If you build a road in a certain area of the North Slope and there’s no oil and gas discoveries, the road really doesn’t help you that much.”
Hebertson also sees a paradigm shift towards the use of lightweight rigs for some remote drilling.
“A lightweight rig that can be easily moved on the rolligons in remote areas again goes back to being able to make multiple penetrations in a very short drilling window,” he said. “We’re not specifically working that issue as a company but we’re certainly working that issue with drilling companies to help facilitate something like that.”
The use of a lightweight rig becomes a trade-off between portability and the ability to drill deep — the lighter the rig the less deep it can drill. Opportunities in the foothills generally range in depth from 4,000 feet to 15,000 feet and the depth of an opportunity will determine the type of rig to use, Hebertson said.
In 2003 Anadarko constructed its Arctic platform to drill the Hot Ice gas hydrate prospect south of Kuparuk on the North Slope. The Arctic platform has steel pilings that hold the structure above the tundra, rather like an offshore drilling platform. The platform enables people to extend a drilling season or even drill over multiple seasons, when drilling wells from a remote location.
“The platform itself is still up on the slope. It’s a prototype. It was always intended to be a prototype … It performed like it was supposed to work,” Hanley said. “… The goal is to have a service company take this thing and use it not just in Alaska but in other places.” Companies have contacted Anadarko about the rig, he said.
Doing business in Alaska Although Hebertson stressed Anadarko’s commitment to Alaska he also pointed out that exploration opportunities in Alaska have to compete with the company’s portfolio of opportunities elsewhere. However, Alaska offers significant resource potential and a stable political environment.
“You’ve got a governor and a Legislature and congressional delegates who are very supportive of the oil and gas industry,” Hebertson said.
And although Alaska lacks infrastructure, the same can be said of many exploration regions, he said.
One big issue for Alaska is distance from markets and the resulting transportation costs for products.
“We are addressing this a little bit as a company — we’ve challenged the TAPS rates … we think they’re as much as $2 per barrel too high,” Hanley said.
The other big issue for Alaska is the length of time that it takes to discover and develop a field, primarily because of the short winter drilling and construction season.
“If you need to do three exploration wells before you find something and then once you find it you do three delineation wells — that’s six wells,” Hanley said. “They might take the same amount of time (as other areas) to actually drill, but you can get those done in a year and a half in the Gulf, maybe, or two. Here it might take you six.”
Then by the time you’ve brought a field on line it might be 10 years or more from the first evaluation of the prospect. That extends the development timeline well beyond the span of any price futures contract and introduces major uncertainty into both development costs and product pricing.
That’s why, just because prices are up over a year, you’re not going to suddenly see 500 rigs going on the North Slope, Hanley said.
But the opportunities in Alaska do dovetail into Anadarko’s exploration strategy.
“I think the resource potential is there in Alaska. It’s never been a resource issue — the challenges in Alaska are commercial much more than they are from a resource perspective,” Hebertson said. “… Anadarko has been around on the slope for a long time. We’re committed to Alaska. We’ve always been committed to Alaska. I think we’re going to be here for the long term.”
And plans for this winter? “We’re going to continue to be active this winter just like we have been,” Hebertson said. “I think you’ll see Anadarko be involved with additional seismic acquisition in our focus areas and hopefully we’ll be participating in some drilling this winter, but that’s yet to be determined and resolved.”
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