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

Vol. 28, No.39 Week of September 24, 2023

Santos investors visit

Provides Pikka project update, ramping up to 1,000 on North Slope by year end

Kay Cashman

In an "Alaska Investor Visit" from Sept. 17 through Sept. 19 that included a Pikka project site tour, 11 individuals representing major Australian shareholders and equity analysts made the trip. Officials from Santos and its local operating subsidiary Oil Search (Alaska) provided the visitors with a comprehensive update on the North Slope development.

(See graphics in the online issue PDF)

That update included a more specific time for Pikka Phase 1 start-up -- second quarter 2026 versus simply 2026.

The event kicked off with a management dinner in Anchorage on Sept. 17, followed on the 18th with management presentations and a stakeholder lunch and panel, and on the 19th a trip north for the Pikka project site tour.

In its 49-page written/slide presentation for the Investor Day Visit Santos says its Alaska team, which is headed up by Bruce Dingeman, has "demonstrated ongoing technical and operational success on the North Slope." In the first two drilling seasons, four wells, seven penetrations were "delivered on time and under budget, zero LTls (lost time incidents)."

The team also twice broke a 40-year record for earliest drilling start on the North Slope.

Santos also noted that Pikka's civil program is complete; and major construction (fabrication and field construction) is underway.

Nanushuk Fairway, geology

Santos touted excellent development opportunities across major Nanushuk trends with additional satellite reservoirs in its presentation. The Nanushuk reservoirs are found in topset deposits of "enormous Brookian clastic clinoforms" from western NPR-A to Santos' core position west of the central North Slope.

More than "15 laterally continuous Nanushuk fairways underpin enormous potential across Santos acreage," the company said.

Furthermore, discovered Nanushuk fields "exhibit modest API gravities, generally 24- -40- ."

Santos said one of the advantages of its Pikka and area leases is that they are in a "proven play fairway with developments in progress and further running room."

The company lists the following Oil Search (Alaska)-operated fields and prospects in the Nanushuk Fairway:

*Pikka -- Discovered in 2013 with the Qugruk-3 (Q-3) well, completed appraisal in 2019.

Pikka Phase 1 -- initial drill site and processing facilities.

Pikka Phase 2 -- additional permitted drill sites.

*Quokka -- Discovered in 2020 (Mitquq).

*Horseshoe -- Discoveries in 2017 (Horseshoe) and 2020 (Stirrup).

Under offset operators in the Nanushuk Fairway, Santos lists the following (all are ConocoPhillips Alaska):

*Qannik (CD2) -- First oil in 2008; six producers, three injectors.

*Narwhal (CD4) -- Appraised in 2019 (one producer and one injector) following Q-3 and Pikka appraisal success. Planning additional wells in CD4.

*Potential new drill site (CD8) as tie back to CD4.

*Coyote -- Appraised in 2021 following Mitquq discovery in 2020; currently producing from two-well EOR pilot drilled in 2023 and advancing new 11-well development.

*Willow -- Appraised in 2018 following Q-3 success; pending development.

Robust Phase 1 economics

Santos said a "highly appraised reservoir underpins" robust Phase 1 economics in that Phase 1 "targets the heart of the Nanushuk 2/3 reservoirs."

It has the greatest net pay with up to 140 feet in the Nanushuk 2/3 reservoirs across the Nanushuk Drillsite B (NDB) Phase 1 development area.

Santos said it has "excellent resource density with 397 MMbbl gross (165 MMbbl net) of 2P reserves.

Furthermore, Nanushuk 2/3 is fully appraised at Pikka with excellent control of reservoir properties and deliverability, the company said, noting:

--five wells with core data around the NDB laterals.

--four flow tests constrain deliverability around the Phase 1 area of interest.

Santos expects strong per well recoveries across the Phase 1 footprint underpinning a capital-efficient development plan.

Development drilling began in June.

Phase 1 development

Pikka Phase 1 builds out the initial processing facility, drill site, seawater treatment plant and operations pad.

Nanushuk Drillsite B, or NBD, will have 43 producer/injector wells. The Nanushuk Processing Facility, or NPF, is a modular design approach with 80.000 barrels a day processing capability.

The Seawater Treatment Plant, or STP, will have 100 MBWPD capacity expandable to 150/200 MBWPD.

The other components of Phase 1 include more than 100 miles of oil, gas, and water pipelines, a grind and inject plant, an operations pad, or NOP, and a Tie-in Pad, or TIP.

A key metric in the development plan, Santos said, is optimization using existing pipeline capacity, single small footprint drilling pad and electrified field operations.

Santos estimates that the lifecycle breakeven oil price for the project will be approximately $40 per barrel.

The annual operating expenditures, the company said, would be in the neighborhood of US$150 million, with the internal rate of return, or IRR, at 19% assuming a US$60 long-term per barrel price.

Phase 2 capex to nameplate capacity, Santos said, is US$2.6 million gross, with US$1.3 billion for Santos' 51% share.


Facilities design, logistics

Building the Pikka project in phases and using a standardized truckable design have helped reduce the costs and risks of the project, Santos said.

For example, utilizing a standardized truckable Nanushuk Processing Facility, or NPF, instead of a typical North Slope sealift design has resulted in a savings of US$200 million.

The processing modules will all be 14-foot by 130-foot by 16-foot by 90-ton.

The facilities are being built in Canada and then transported by barges and trucks to the development site on the North Slope.

Project execution risk, Santos said, is reduced by increasing the seasonal transport window from one month to 10 months and reducing peak activity levels.

River lift modules are increasing the fabrication window up to three months, the company said. Another factor in reducing execution risk is installing modules that are trial fit in the fabrication yard.

Long-term growth potential

The remaining 2P reserves in the Pikka unit for future phases are 519 million barrels.

"Future phases leverage Phase 1 infrastructure to deliver compelling economic returns allowing for self-funding growth while returning cash to corporation," Santos said, noting "ongoing appraisal and permitting activities will feed the development pipeline."

Rig specs, upgrades

Rig 272 will be used by Santos at Pikka. It is fully enclosed and heated for Arctic drilling, the result of a Kuukpik-Parker joint venture.

Built in 2011, it is a full cantilever design with 1800 horsepower draw works and a max hook load of 750,000 pounds.

Other rig specifications included in the Santos presentation were the following: 13-5/8" 5000 psi blowout preventer, or BOP; 3x3516C-HD Caterpillar engines; 2 x 1600 horsepower mud pumps; three modules, each with a moving system; and offline pipe handling capability.

Purpose built rig upgrades for Pikka Phase 1 include:

--Tier 4 equivalent exhaust system.

--Pipe skate upgrade for 5-7/8" drill pipe.

--Finger boards for 5-7/8" drill pipe.

--TDS11SAE top drive (55,000 ft lb continuous torque top drive).

Net zero commitment

Santos continues to emphasize its commitment for Pikka to be "net-zero (Scope 1 and Scope 2 emissions, equity share) from first oil."

The company has offered more information about its partnering with a Native corporation on carbon offsets, specifically on an "improved forestry project."

Santos also said it joined a consortium in 2022 to "pursue CCS projects in Alaska leveraging federal funding."

Alaska, the company said, is the right place for responsible development.

Exploration and construction conducted on the North Slope 90-120-day winter window and using ice roads and pads leaves no trace, Santos said.

Alaska and the North Slope have some of the strongest environmental standards in the oil and gas industry; in fact, the robust permitting process is the "foundation of the North Slope's strong environmental credentials and performance -- ESG compliance is baked into the process," Santos said.

Another plus for the North Slope is that it is a mature basin with existing and underutilized infrastructure -- Pikka is a "project footprint only" development, not a "frontier" development, adding production to a stable and well-regulated operating area, Santos said.

"By producing oil in the North Slope of Alaska we are managing climate change transition risk, ensuring oil is produced at a low GHG emissions intensity and with the highest environmental standards," Santos said.

Another major plus for Santos is the supportive local communities and indigenous people on the North Slope.

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