|
New Umiat report drops reserves, lowers recoverable based on price
An independent third party has decreased its estimate of the reserves at the Umiat field.
In an update of a report from some two years ago, the consulting firm Ryder Scott Company LP is reducing its estimate of the probable oil reserves, 2P, at the field by 36 percent and the probable and possible oil reserves, 3P, at the field by 25.4 percent.
The reduction is the result of the persistent decline in global oil prices, information gleaned from exploration activities at the field and a decision to shrink a proposed development plan for the oil field in the foothills of the Brooks Range, according to operator Linc Energy Ltd, which released the report in early December.
The updated report estimates 2P reserves of nearly 99 million barrels of oil equivalent (down from some 154.6 million barrels in the previous report) and 3P reserves of some 144.7 million barrels of oil equivalent (down from more than 194 million barrels).
Generally, “probable” means the estimate has at least a 50 percent chance of actual recovered volumes meeting or exceeding the P2 estimate, and “possible” meaning at least a 10 percent chance of actual recovered volumes meeting or exceeding the P3 estimate.
Smaller project Since completing a two-well exploration program at Umiat in early 2014, Linc has been analyzing drilling results with the goal of creating a development strategy for the field.
The initial reserves report from September 2013 used limited modeling of the Lower Grand Formation before Linc had completed its exploration campaign. In 2014, Linc hired Petrotechnical Resources of Alaska LLC to develop a fuller model of the field.
One of the changes applied to the newer model was a scaled back development program.
In October 2014, Linc said an initial Umiat development could include as many as 70 wells. By June 2015, the company was outlining a development program calling for approximately 13 drilling pads to accommodate 150 wells with drilling to begin as early as 2021. In October 2015, the company announced a plan to construct five drilling pads with approximately 35 development wells in order to bring the field online by 2022.
Initially, that most recent scheme was expected to produce 45,000 barrels per day at its peak. Now, the company believes a 30,000-barrel-per-day project would be more economic “over the life of the project” by requiring smaller facilities and pipelines.
New reserves report With the reduction, the company commissioned a new reserves report.
The newer report is hardly a crystal ball. Ryder Scott acknowledged that alternative well patterns could improve the economics of the projects and seemed to suggest that an operator could potentially shift gears years into develop to speed up production. The report is also based on the ACES tax system as modified by Senate Bill 21. The specifics of the Alaska tax code, as Ryder Scott put it, “are always subject to revision and amendment.”
The report also forecasts a rise in oil prices, starting at $66.03 per barrel in 2016, jumping to $86.66 per barrel in 2017 and climbing as high as $124.34 per barrel by 2024.
The report uses a net cost of $12 per barrel for development activities.
Even with the reduction, Linc believes the report “has continued to verify the Umiat field as an asset of significant value to our shareholders,” CEO Craig Ricato said in a statement. “Linc Energy remains committed to the development of the Umiat oil project and will continue to focus on achieving key project development approval milestones in the near term. The 2016 work program will progress these project approvals.”
Undeveloped for ages Although Umiat is one of the largest known and undeveloped oil fields in Alaska, its remoteness and technical challenges have kept it from being developed.
Developing the field would probably require a roughly 100-mile road and pipeline corridor to connect to the trans-Alaska oil pipeline and the Dalton Highway.
Even with the transportation problem solved, any development program would need to account for the unusually shallow reservoirs, which are partially buried in permafrost.
The U.S. Navy drilled 11 wells at the field in the late 1940s and early 1950s to follow up on seeps in the region, and Husky Oil returned in 1979 to drill an additional well.
Various companies pursued the Umiat field over the intervening decades but none were able to successfully arrange an exploration program until Linc acquired the leases. The company drilled the Umiat No. 18 well in early 2013 and the Umiat No. 23H well in early 2014. The latter was the first horizontal well to be drilled at the Umiat field.
With the exploration program, Linc believes it identified drilling and completion techniques that would resolve the temperature and pressure challenges of the field.
- ERIC LIDJI
| 