Alaska part of Pioneer’s commercialization portfolio

Company targets first Alaska production in 2006 from previously discovered Gwydyr Bay accumulations north of Prudhoe

Kristen Nelson

Petroleum News Editor-in-Chief

Pioneer Natural Resources is targeting first Alaska production in 2006 from small, known Gwydyr Bay accumulations, and will be working on fiscal terms with the state for its Oooguruk discovery, looking for a reduction in royalties for those leases.

Alaska is part of Pioneer Natural Resources’ commercialization portfolio — along with the Gulf of Mexico, North Africa and South Africa gas, Ken Sheffield, president of Pioneer Natural Resources Alaska, told the Resource Development Council for Alaska’s annual conference in Anchorage Nov. 18. Pioneer Natural Resources Alaska is a subsidiary of Irving, Texas-based Pioneer Natural Resources.

Pioneer has been making investments in Alaska now for a couple of years, Sheffield said, and has six plays in its Alaska portfolio, including the company’s Oooguruk discovery, where Pioneer has a 71 percent working interest in some 63,000 gross acres and is the operator.

This discovery, Sheffield said, “located near the mouth of the Colville River … is a pretty sizeable oil accumulation in the shallow waters of the Beaufort Sea,” but making the project commercial is “quite challenging.”

He said “Pioneer’s been working this problem very hard over the last year,” and the company believes there is a good chance “under certain economic conditions, of bringing this project forward.”

Pioneer will be doing some additional engineering studies next year at Oooguruk “to further define the scope of the project” and to produce cost estimates for the project, as well as beginning some permitting work, and will be discussing royalty reduction with the Alaska Department of Natural Resources, because “this is an economically challenged project and we really need to protect the down side in the event that oil prices were to fall to a low level and that’s an essential part of us moving forward with this project.”

Gwydyr north of Prudhoe Bay

Pioneer is exploring the Tuvaaq prospect in partnership with Kerr-McGee. Tuvaaq is adjacent to Oooguruk, Sheffield said, and Pioneer will have a 40 percent interest in the well that will be drilled there this winter.

South and east of Northstar Pioneer has 100 percent interest in what it calls the Caribou prospect, an area which could be drilled from Prudhoe Bay infrastructure, he said, “and we’re working with the unit owners to try to find a plan to move that project forward.”

South of Prudhoe Bay Pioneer has a 50 percent working interest in 130,000 acres in the Storms Lead area where the company’s partner is ConocoPhillips and “where we’re moving forward with a 3-D seismic survey.”

In the National Petroleum Reserve-Alaska, Pioneer is a 20-30 percent owner in some 884,000 gross acres, in partnership with operator ConocoPhillips and Anadarko, “and that’s a big part of our long-term strategy.”

Upfront risk

Investment considerations that a company like Pioneer looks at when making investments in Alaska, he said, include: high cost operations, high transportation cost to market and long project cycle time.

“And that’s the biggest risk for us, is you have to spend a lot of money and a lot of time and a lot of effort, and it will be sometime before we know whether we’ll ever really make money.”

On the plus side, Sheffield said, “the business climate in Alaska is opening up for independents — there’s a lot of opportunities for us to invest.” The regulatory process is improving and “although we’re not exploring for gas right now, being positioned on the North Slope” will give the company a chance “to be a player in the gas market” in the future.

But “the threat of higher taxes concerns as considerably,” Sheffield said, as do regulatory and project delays.

Right now, he said, Pioneer has no production from Alaska, just a lot of “money tied up” in the state.