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Paine's mixed response to Smith Bay Co.'s revised exploration plan
Kay Cashman Petroleum News
On Aug. 15, the Alaska Department of Natural Resources' Division of Oil and Gas received a revised plan of exploration 2025-2026 from Smith Bay Company Alaska, which is based in Batavia, IL.
The revised plan of exploration requested an extension to the current suspended POE and additionally requested a suspension of rental payments on the Smith Bay Unit leases during the suspension.
In response, on Sept. 8, the agency's Deputy Director Haley Paine sent a certified letter to Smith Bay Company President David Pfeiffer, explaining that in the division's Sept. 4, 2024 decision approving the suspension, the POE suspension was "approved through 60 days following a decision following litigation on the merits of the regulations issued" by the U.S. District Court of the District of Alaska regarding National Petroleum Reserve-Alaska regulations or June 30, 2027, whichever was earlier.
"Since there has not been a decision issued, the current suspension is still approved, and therefore, a request for extension is unnecessary," Paine wrote.
She said Smith Bay Company can continue operating under the previously approved suspension without any changes to the conditions set forth in the decision.
Rental payments, Paine wrote, "are due to the State under AS 38.05.180(n), 11 AAC 83.110, and lease provisions. The leases
are not eligible for a rental reduction under 11 AAC 82.466, as they are already at the minimum rental as defined in AS 38.05.180(n)(1)."
Under the current suspension of the POE, the division "does not have the discretion for rental relief, or suspension, under AS 38.05.020(b)(5) or AS 35.05.140(d), therefore, the request is denied," Paine said.
Revised POE The revised plan of exploration 2025-2026 filed on Aug. 15 by operator Smith Bay Company included the following unit history.
In December 2012 and October 2013 NordAq Energy was awarded a total of 26 state leases covering 117,093 acres in the shallow waters of Smith Bay off the coast of the NPR-A.
These leases had primary terms of 10 years.
In 2015 Caelus Energy Alaska Smith Bay farmed into all the Smith Bay leases for a 75% working interest. After exercising its right to re-acquire working interest originally granted to L -71 Resources of Doyon Limited, NordAq had a 17.5% non-operated interest and L-71 had a 7.5% non-operated interest.
An offshore ice island two well exploration drilling program was commenced in the latter part of 2015 to test a series of amalgamated Torok (Albian) basin floor fans and deeper reservoir objectives.
Both wells (CT-1 and CT-2) in first quarter 2016 discovered light oil in a sequence of Torok deep water sandstones. Because
of time constrictions at the end of the winter drilling season, the wells were not tested.
In October 2016 following extensive analysis of the 3D seismic and well results, Caelus announced a possible discovery of between 1.8 and 2.4 billion barrels of recoverable oi l. Although the oil in place was calculated to be significant, the fine-grained nature of the Torok reservoirs called into question their deliverability and whether they could be produced at commercial rates.
To answer this uncertainty, Caelus decided to drill an appraisal well (CT-3) in a favorable location where the best reservoir quality might allow a successful test. At that time however, the Alaska Department of Revenue became unable to honor its
promised exploration tax credits due to the collapse in oil price and a budget shortfall. Across all of the Caelus North Slope interests, the company was owed approximately $200 million.
Caelus subsequently attempted to find farm-out partners for the Smith Bay leases.
Several companies were approached and technical and engineering presentations made. However, under uncertain operating and commercial circumstances Caelus received no firm offers.
In October 2020, the Smith Bay Company, which had already acquired the 17.5% working interest held by Nordaq, acquired the 75% held by Caelus.
In 2025 L-71 abandoned its 7.5% which reverted to Smith Bay Company.
Currently Smith Bay Company controls 100% of the working interest in the Smith Bay leases.
Unitization application, approval Following the acquisition of the Caelus interest by the Smith Bay Company, and the forthcoming termination of the primary lease terms, a unitization application was filed on behalf of Smith Bay Company on Oct. 10, 2022, covering all 26 tracts.
At that time, the division was also busy approving the unitization application by Balcony Natural Resources for the Grey Owl leases on state lands east of the Prudhoe Bay oil field and Smither Bay Company was asked to defer its application until after the Grey Owl Unit had been approved.
On Oct. 26, 2023, the company was informed that the Smith Bay Unit application was complete, and the division would
go out for a 30-day public comment period commencing Nov. 2, 2023. No significant comments were subsequently received.
Approval of the Smith Bay Unit by the director of the Division of Oil and Gas took place on Jan. 31, 2024, although the unit approval was retroactively dated back to
Oct. 12, 2022 due to the primary term expiration date for certain leases.
More specifics The water depth in Smith Bay is very shallow with the main area of interest averaging less than 8 feet.
The Smith Bay Unit, or SBU, is immediately offshore in state waters and the upland adjacent areas are federal lands located within the NPR-A.
The plan of exploration is a 5-year forecast of planned unit exploration activities. The primary exploration target is Cretaceous (Albian) Lower Torok turbidite sandstones. Other reservoir intervals of potential interest include the Cretaceous Albian "topset" sandstones, the lower Cretaceous Kuparuk "C" sandstones, the Middle Jurassic "Simpson/Kugrua" sandstones, the Triassic Ivishak sandstones, and the Carboniferous Lisburne carbonates and Endicott sandstones.
The SBU working interest owners have acquired from third parties 3D seismic and 2D seismic over the unit area.
Following the drilling of the CT-3 appraisal well in the 2025-2026 winter drilling season, the working interest owners will evaluate and consider the reprocessing of certain seismic data to improve their understanding of the prospective reservoir characteristics and parameters.
The SBU approval, which was signed by division Director Derek Nottingham, said that "the remote location of the SBU, combined with the difficulty mobilizing equipment to the area, supports unitization. If the application was denied, the leases in the SBU area would likely expire, and it is possible no party would be interested in leasing the area in the future."
-KAY CASHMAN
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