Providing coverage of Alaska and northern Canada's oil and gas industry
September 2008

Vol. 13, No. 38 Week of September 21, 2008

Busy winter ahead

Companies pursue multiyear oil, gas exploration programs across North Slope

Eric Lidji

Petroleum News

This could be one of the busiest winters on the North Slope in recent memory, as some companies follow promising finds and others work to bring fields online.

Anadarko Petroleum Corp. appears to be expanding its search for gas into the National Petroleum Reserve-Alaska, and Brooks Range Petroleum Corp. plans to focus on Gwydyr Bay, while Chevron plans to return to the White Hills. Eni Petroleum is gearing up to drill its first wells at the Nikaitchuq unit, while ExxonMobil proceeds with drilling plans for the Point Thomson unit despite legal challenges.

Other majors such as BP and ConocoPhillips could have exploration news in the coming weeks.

This winter is the first exploration season following revisions to the tax code governing oil and gas production in Alaska. The revised code, called Alaska’s Clear and Equitable Share, or ACES, included an expansion of tax credits designed to promote exploration.

Early reports from the oil patch suggest this winter could be notable for its lack of first-year exploration ventures. Last winter, several large and small companies struck out on ambitious multiyear programs with varying degrees of success.

As a result, some details of the coming season might not become available until later in the year, as companies begin applying for drilling permits. However, early word suggests some of the more active players last winter plan to return to the field in the coming season.

Anadarko stakes three in NPR-A

Anadarko looks to be expanding its search for natural gas in the foothills of the Brooks Range this winter with a move into the NPR-A.

Earlier this month, the independent with extensive land holdings in Alaska staked three exploration wells around the Wolf Creek prospect located 30 miles due west of the historic Umiat field and the Colville River in the northwest portion of the reserve.

The proposed well locations sit on a single federal lease — AA-86604.

A notice of staking is generally the first step toward drilling an exploration well in a frontier area like the NPR-A, but it is no guarantee that a well will ultimately be drilled.

By detailing the proposed surface location for a well, literally with a stake driven into the ground, the notice gives federal land managers a chance to start site inspections, which could uncover possible surface issues, like the location of proposed ice roads or ice pads.

Because the notice doesn’t cover issues underground, Anadarko will need to apply for and receive a drilling permit, as well as other permits, before starting any wells.

Anadarko remains cautious about the notices of staking becoming wells this year.

“We’ve staked some locations to potentially drill next winter,” said spokesman Mark Hanley.

If drilled, the three wells, Wolf Creek No. 4, No. 5 and No. 6, would likely target gas.

The U.S. Navy drilled Wolf Creek No. 1 in the spring of 1951, finding gas in the Chandler formation at 1,500 feet. The well flowed at a rate of 881,000 cubic feet per day of gas, but the Navy never quantified the resource potential of the prospect.

Anadarko picked up the Wolf Creek prospect during a 2006 lease sale in the NPR-A, following several previous acquisitions of nearby acreage in the foothills.

Wolf Creek follows Gubik well

Anadarko made history this past winter with an exploration program deliberately targeting natural gas. Previous gas discoveries in northern Alaska have either been accidental, or incidental to more substantial oil finds.

This past winter, Anadarko drilled two wells, Gubik No. 3 and Chandler No. 1, on Native land east of the Colville River near Umiat, also in the foothills of the Brooks Range.

The Gubik field, like the Wolf Creek prospect, dates back to exploration wells drilled across the region in the early 1950s by the Navy and the U.S. Geological Survey. Those wells found gas in the Prince Creek, Chandler and Ninuluk formations, leading the USGS to estimate total gas reserves at Gubik at around 600 billion cubic feet.

By the end of the drilling season this past spring, Anadarko “encountered natural gas in two zones” with Gubik No. 3, but suspended drilling at the deeper Chandler No. 1 well.

Anadarko left Nabors rig 105-E at Chandler for the summer, with the intention of possibly returning to finish the well this winter. The company also secured Nabors rig 245-E, which is currently stacked at Oliktok Point.

Plans could play into lease sale

Anadarko previously proposed well locations for five other Gubik wells.

The independent could further consolidate its holdings in the foothills in the coming week.

The large swatch of land between the Wolf Creek and Gubik prospects is available as part of the upcoming northeast NPR-A lease sale scheduled for Sept. 24.

Anadarko declined to comment on the upcoming lease sale.

The company is already one of the largest leaseholders in Alaska, with much of its acreage spread across the gas-prone foothills of the Brooks Range. The result of Anadarko’s drilling on those leases could have broad implications for the state in the coming years.

Though Anadarko hasn’t publicly estimated the potential gas reserves in the foothills recently, Enstar Natural Gas believes the Gubik find might justify a small-diameter pipeline into Southcentral Alaska to help offset declining gas fields in the Cook Inlet basin.

But a series of larger gas discoveries spread across several prospects in the Brooks Range foothills could change the supply dynamics for a larger pipeline running into Canada and the Lower 48. Two proposals to build that line depend on known gas accumulations at legacy oil fields further north on the Slope.

Currently, no major natural gas infrastructure exists in northern Alaska.

Anadarko is partnering with BG Group and PetroCanada on its exploration program in the foothills. Anadarko partners with ConocoPhillips on other projects in the state.

BRPC plans Gwydyr Bay wells

A joint venture lead by Brooks Range Petroleum Corp. is moving forward with a development plan for several prospects north of Prudhoe Bay on Alaska’s North Slope.

The four-company partnership plans to drill as many as three wells this winter, exploring two prospects along the Gwydyr Bay coastline, between the Sakonowyak and Kuparuk rivers.

The goal is to prove up possible reserves enough to justify developing the prospects.

Though no development plans have been filed with the state, the joint venture is currently running economic models and starting early engineering work related to future facilities, according to Hillary McIntosh, manager of business development and external affairs for BRPC. She said the companies expect to apply for a development unit this fall.

The joint venture, which includes partners TG World Energy Corp, Bow Valley Alaska Corp. and Nabors subsidiary Ramshorn Investments Inc., led one of the busiest exploration programs on the North Slope this past winter, drilling two wells and a pair of sidetracks, as well as acquiring a portfolio of 3-D seismic data.

The drilling program this year divided BRPC’s efforts over two prospects, one at Gwydyr Bay and another near the village of Nuiqsut to the south. This winter the company will focus on Gwydyr Bay, drilling wells at the North Shore and Sak River prospects.

BRPC drilled the North Shore No. 1 exploration well in 2007, and tested the well this year at a rate of 2,092 barrels per day of oil from the Ivishak formation. A mechanical problem down hole compromised a test of the shallower Sag River formation, but one partner predicted the well could have hit flow rates up to 1,000 bpd if unencumbered.

This winter, BRPC plans to drill the North Shore No. 3 exploration well from the same pad used to drill North Shore No. 1. The well will require the company to build five miles of ice road, connecting existing gravel roads in Prudhoe Bay to the south, according to operations plans filed with the state in August.

A little more than a mile to the north, BRPC also plans to drill Sak River No. 1A, a sidetrack of a dry hole the company drilled in 2007. If the well is successful, the company would also drill a second sidetrack, Sak River No. 1B.

Expanded holdings over summer

The proposed exploration program follows a summer where the joint venture expanded its Gwydyr Bay land holdings by acquiring 5,120 acres from Pioneer Natural Resources. The three state leases included the Pete’s Wicked oil prospect discovered by BP in 1997.

After the land acquisition, the four companies met to discuss strategies for “establishing a threshold” at Gwydyr Bay, or finding methods of developing the tight grouping of fields and satellites in the region in the most economic manner.

Speaking to investors in June, Clifford James, TG World Energy president and CEO, mentioned several proposals, which included using the North Shore pad to test two satellites and drilling lateral wells from Sak River to test the Kuparuk formation.

James also mentioned lumping the various prospects into two general production areas, one at North Shore and another at Pete’s Wicked and the Arcturus prospect to the east.

JV returns seismic to front burner

The joint venture also plans to shoot 3-D seismic next March or April over its Slugger prospect south of Point Thomson on the eastern edge of the central North Slope.

The companies had planned to shoot 130 square miles of seismic earlier this year, but postponed the program because of travel restrictions on the North Slope.

“It’s crying for seismic to firm up some of these prospects,” James said in June.

The companies picked up the Slugger leases in October 2007.

Chevron back to White Hills

Chevron will return to the White Hills prospect this coming winter to continue a multiyear and multiwell program started this past winter.

In the early months of the year, the company drilled three exploration wells at the prospect in the foothills of the Brooks Range just west of the Dalton Highway.

The seven- or eight-well exploration program represented a return to northern Alaska for Chevron after nearly 15 years focused on Cook Inlet.

In paperwork filed with the state before the White Hills program began, Chevron detailed locations for seven wells at the prospect. This past winter, the company drilled Smilodon 9-4-9, Mastodon 6-3-9 and Panthera 28-6-9 using Nabors rig 106E.

The company plans to use the rig again for work at White Hills this winter.

Chevron named the proposed wells at White Hills after prehistoric animals, including Stegodon, Gulo, Megatherium and Titanothere.

Over the summer, Chevron brought on Total E&P USA Inc., a subsidiary of the French major Total S.A., as a 30-percent partner on the project. Total currently holds extensive state acreage in the Beaufort Sea, and once held federal acreage in the NPR-A.

Chevron has declined to identify the target of the White Hills effort, or release any results from the first year of the drilling program, calling it a “tight” venture.

Eni gets Nikaitchuq permits

Eni Petroleum recently secured its first drilling permits for the Nikaitchuq offshore unit in the Beaufort Sea. The Alaska Oil and Gas Conservation Commission issued permits for a development well and service well, both located at Oliktok Point.

The Italian major sanctioned the $1.45 billion project this past January, laying out a plan for drilling around 80 wells from a combination of onshore and offshore pads. The company also plans to build independent processing facilities to support the unit.

ExxonMobil moves on Point Thomson

Earlier in the year, ExxonMobil announced plans to drill exploration wells in the Point Thomson unit this winter, despite complex geology and even more complex legal issues.

The Texas-based major recently barged equipment and supplies to the easternmost state unit on the North Slope, just west of the Arctic National Wildlife Refuge, in preparation for a $1.3 billion program to drill up to five wells and bring the unit online by 2014.

The spending includes $20 million in upgrades to Nabors Rig 27E. Though the rig has racked up significant mileage across the North Slope over the past five years, it is not currently designed to handle the high-pressure reservoir at Point Thomson.

The upgraded rig is expected to arrive on the North Slope by the start of the year.

As ExxonMobil prepares to drill, the company remains tied up in legal battles with the state Department of Natural Resources over the status of the unit.

Earlier this year, the state terminated the Point Thomson unit and revoked all but one of the leases, saying ExxonMobil hasn’t done enough to develop the unit over the past 30 years. ExxonMobil still considers itself a leaseholder, though, saying the state had no legal basis for revoking the leases. The parties remain in court over the matter.

The various parties have until mid-October to update the court on mediation attempts.

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