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State wants more drilling in proposed Slugger unit Leaseholder plan includes single exploration well; state wants BP to drill one well in each of two areas on tracts southwest of Point Thomson unit Kristen Nelson PNA Editor-in-Chief
The state has told applicants for an exploration unit southwest of Point Thomson that two wells, not one, will be required for approval of the unit, but has given them an extra year to complete an exploration plan. BP Exploration (Alaska) Inc., as operator, on behalf of itself and Chevron U.S.A. Inc. and Phillips Alaska Inc., applied to the state to form the Slugger unit with a work commitment of one exploration well.
That plan, the Department of Natural Resources Division of Oil and Gas said March 30, is not in the best interest of the state because one well is not enough to evaluate the entire 79,508 acre area which would be included in the unit. (See map on the next page.)
The state said that discoveries near the proposed unit include the Point Thomson unit some 4 miles to the northeast and Badami, some 2 miles to the north. A dry hole, the Union Leffingwell No. 1, was drilled some 3 miles east of Slugger in 1984.
Kemik formation to be evaluated The plan as submitted said the unit “encompasses all or part of a potentially oil-bearing reservoir in the Kemik formation” and proposed a two-year initial plan of operation including reprocessing and interpreting a portion of an existing West Thomson 3-D seismic survey over the proposed unit.
BP said the companies would make a decision by June 15 whether or not to drill a well. If they commit to drill, the well would have to be completed by June 15, 2003. If the companies commit to drill the well but fail to drill it, they would pay the state $300,000.
The Division of Oil and Gas agreed with the companies’ geologic analysis, which said the 14 state oil and gas leases encompass the minimum area of one or more potential oil or gas reservoirs, but said the plan was not in the state’s best interests because it would not evaluate the entire area proposed for inclusion in the unit. The state’s plan calls for two exploration wells, one in each of two areas within the proposed Slugger unit. State wants more The state has proposed a three-year exploration plan; if the working interest owners do not agree by April 30 and proceed with the exploration activities, then the unit will not be approved and eight leases terminate March 31.
The state’s counterproposal calls for a drill-no drill decision on the first well by June 15. If the companies decide not to drill, the unit would be terminated.
The first well, the Slugger No. 1, must be drilled through the Kemik formation and completed by May 15, 2003, the state said, or the unit would be terminated and the working interest owners would pay the state $430,000 in lieu of monies the state could have earned re-offering those leases which would have expired.
Leases in the unit have different expiration dates. The eight oldest expire March 31; forming the unit will extend the leases for as long as they are part of the unit.
A drill-no drill decision on the Slugger No. 2 well would be required by June 15, 2003; failure to commit to drill would result in termination of the unit.
If the working interest owners commit to drill the second well, it must be drilled and completed through the Kemik interval by May 15, 2004, or the unit would be terminated and the working interest owners would pay the state $370,000.
The second well may be sidetracked from the an earlier well bore, but must be at least 1,500 horizontal feet from the initial well bore at the top of the Kemik. Well coverage specified The state is also requiring one well in each of the two areas, and specifying penalties if that requirement is not met. If two wells are drilled, but both are in area A, then area B acreage would contract out of the unit and the working interest owners will pay a penalty of $380,000.
If the only wells drilled are in area B, then A acreage would contract out of the unit and the working interest owners will pay a penalty of $360,000.
BP, Chevron and Phillips Alaska hold all of the working interest ownership in the leases. On 10 of the leases, the split is BP 42 percent, Chevron 33 percent and Phillips 25 percent. BP and Chevron are 56-44 owners on three leases and Phillips owns 100 percent of a single lease.
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