Providing coverage of Alaska and northern Canada's oil and gas industry
March 2023

Vol. 28, No.13 Week of March 26, 2023

Minor changes to Pikka project approved by state of Alaska DO&G

Kay Cashman

Petroleum News

On March 16, Alaska’s Division of Oil and Gas approved Oil Search (Alaska)’s March 7 request to amend the Pikka Development Project Phase 1 plan of operations.

Oil Search (Alaska), or OSA, a subsidiary of Santos Ltd., provided the division with a project update and associated figures that reflect current Phase 1 activities in the Pikka unit. The project, which is located west of the central North Slope, was initially called the Nanushuk Development Project, which explains why each of the pad names begin with ND - ND-A, ND-B, and ND-C.

(See diagram in the online issue PDF)

Also, note that the Phase 1 pad ND-B is located approximately 12 miles northeast of the community of Nuiqsut.

In its March 16 decision the division said the updates from OSA are a result of “incremental advancements in project design, construction methods, and operational requirements,” noting OSA has adopted a scaled, or phased, approach strategy to project development, in which the first phase would provide the cash needed for subsequent phases.

Pikka Phase I has advanced through front end engineering and design, or FEED, and achieved a final investment decision for the project in August 2022.

Plan of operations activities include the following:

• Drill 43 horizontal wells at ND-B.

- 22 production wells

- 21 injector wells for enhanced oil recovery

• Drill one disposal well at ND-B to accommodate the Grind and Inject facility

• Install infield pipeline connecting ND-B to Nanushuk (Pikka) Processing Facility, or NPF, with the following revised diameters:

- Multi-phase: 24 inch

- Sea Water (water inject): 10 inch

- Gas Lift: 6 inch

• Construct an 80-foot telecommunications tower at ND-B.

• Updated schedule:

- Construct ice roads and pads for gravel and pipeline construction Jan. 6, 2023, to May 31, 2026.

- Construct boat launch road and pad and a portion of the ND-A infield road Jan. 6, 2023, to May 31, 2026.

- Construct pipelines Nov. 1, 2023, to May 31, 2023

- Drilling at ND-B May 15, 2023, until complete as opposed to starting drilling in April

- Construction of ND-A and ND-C in the future

- Operations Oct. 1, 2025, to life of field

- First oil expected in 2026

Latest reserve numbers

Santos’ Feb. 14, 2023, Annual Reserves & Resource Statement reported that 165 million barrels of oil equivalent 2P reserves were added in Alaska following the sanction of Pikka Phase 1 in August.

“The final investment decision on the Pikka Phase 1 project in Alaska in 2022,” Santos said, “commercialized 165 mmboe of 2C resources to 2P reserves. …This was more than offset by increases in Alaska contingent resources outside the Pikka Phase 1 area attributable to new well data, including the Mitquq and Stirrup discovery wells, seismic reprocessing and integrated reservoir studies.”

This increase was Santos’ share of the reserves, which represents 51% versus Repsol’s 49% share.

In its share of 2C reserves as of Dec. 31, 2022, Santos lists Alaska as having 438 million barrels of crude oil; again this is Santos’ share.

In its explanation of abbreviations used in the Feb. 14 report, Santos said 1P means proved reserves and 2P is proved plus probable reserves.

The company also said “consistent application of Santos’ disciplined operating model continued to deliver reserves additions in its offshore assets, especially Alaska.”

Accelerate first oil

Santos’ final investment decision for Phase 1 of the Pikka oil project is estimated to cost US$2.6 billion, with Santos and Repsol each to pay approximately $1.3B each. The final investment decision was part of a Santos press release on Aug. 17.

Pikka Phase 1 is expected to produce 80,000 barrels a day, with output reaching that level shortly after startup.

In a Santos Investor Day briefing in Adelaide on Nov. 8, OSA President Bruce Dingeman said the Alaska team is looking for “opportunities to accelerate” first oil; in other words, to begin oil production earlier than mid-2026, which is the timeline OSA gave the Regulatory Commission of Alaska on Sept. 16.

Dingeman said OSA had just mobilized its first camp, a 185-bed camp, to Pikka and was starting to drill well cellars.

On March 19, 2021, Dingeman said the company was looking at “value engineering and changing our concept to squeeze further costs out of it while maximizing recovery and production benefits. That’s resulted in us being able to lower our breakeven costs from $45 to sub-$40 (per barrel). This includes a 10% rate of return in that number, so that makes it more resilient” to lower oil prices.

Nanushuk first

The Nanushuk formation forms part of the Brookian sequence, the youngest and shallowest of the major North Slope petroleum bearing rock sequences.

Although rocks of the Brookian are found across the entire North Slope, the Nanushuk is found mainly west of the central North Slope.

Initially Pikka Phase 1 drilling from ND-B will target the Nanushuk reservoir. But the Alpine and Kuparuk sands are secondary targets.

Net zero project

In its Aug. 17 press release, Santos said Pikka Phase 1 has “strong fundamentals, is located in a world-class oil producing province with significant existing infrastructure, has low unabated emissions intensity and is supported by key stakeholders, including the State of Alaska, the North Slope Borough, the landowner company Kuukpik Corporation and the Arctic Slope Regional Corporation (ASRC).”

Taking an FID, or final investment decision, on Pikka Phase 1 is “consistent with Santos’ goal of achieving net-zero (scope 1 and 2, equity share) by 2040,” Santos said in the Aug. 17 press release.

Santos said it is “committed to delivering a net-zero project (scope 1 and 2, equity share) and has entered into Memorandums of Understanding with Alaska Native corporations to deliver carbon offset projects, including a “strategic alliance with ASRC Energy Services, a wholly-owned subsidiary of ASRC, on leading technology development for carbon solutions in the Arctic.”

“Santos has emission reduction plans to achieve scope 1 and 2 net-zero emissions by 2040 and in-line with that commitment, Pikka will be a net-zero project,” Santos Managing Director and Chief Executive Officer Kevin Gallagher said.

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