Tight situation

Alaska oil explorers hit the limits on winter drilling rig availability

Alan Bailey & Kay Cashman

Petroleum News

The surge in exploration activity planned for Alaska this winter has placed a major strain on the supply of drilling rigs suitable for use in the demanding conditions of a long Arctic winter. At last count four companies with exploration drilling plans — Linc Energy, Savant Alaska, UltraStar Exploration and Great Bear Petroleum — had yet to sign contracts for drilling rig use. And given the relatively small inventory of Arctic rigs it seems highly improbable that all of these companies will end up drilling in the coming months, assuming that companies with rig contracts do in fact proceed with their planned drilling.

Three other companies, Repsol, Brooks Range Petroleum and Pioneer Natural Resources have seven rigs under contract for this coming winter exploration season: Repsol expects to drill 12 wells; Brooks Range, two wells, plus re-enter a third; and Pioneer, two wells.

Nabors operates 12 rigs

Two of the Arctic rigs are workover rigs for in-field use, while another has a design that is not especially suitable for exploration drilling.

Any of the other active rigs could potentially be used for exploration drilling, but three of those rigs are under contract for development drilling in North Slope oil fields during the winter. Another rig is drilling wells for Cook Inlet Natural Gas Storage Alaska’s new natural gas storage facility on the Kenai Peninsula.

All six remaining Arctic rigs are already contracted for winter exploration drilling, Hebert said. However, Repsol, a company that has contracted for the use of four Nabors rigs during the winter, has recently informed Nabors that it will not in fact require one of those rigs, thus putting one rig back on the market, he said.

However, specific rigs are only suitable for certain types of exploration drilling project — the question of whether a particular rig is available for a particular project will depend on both the design of the rig and the nature of the project, he explained.

“It requires matching a certain rig to a certain type of location.”

Nabors has three rig types

Essentially, Nabors operates three rig types: large wheeled, self-propelled rigs that can traverse ice roads but that cannot cross ice bridges over waterways; truck-pulled rigs that require ice roads but can cross a heavy-duty ice bridge; and modular rigs that can be broken down into truck loads for transportation to remote sites, crossing floating ice bridges en route if necessary.

Nabors has an additional wheeled, self-propelled rig that is currently mothballed and would require at least two months of work to bring back into service, Hebert said, adding that Nabors is not in an immediate position to activate that rig, given the company’s current workload.

A second mothballed rig requires substantial refurbishment involving quite a few months of work, he said. And, although Nabors has other mothballed rigs in Alaska, these rigs require major refurbishment, involving many millions of dollars in expense. Given the substantial cost and time required to bring any of these rigs into operation, an exploration company would have to make a firm commitment for rig use well in advance of a drilling operation, Hebert said.

“That would take some sizable commitment on someone’s part,” he said. “That would not be something that most (drilling) contractors would speculate on.”

Winterization has to be done correctly

“It can be done, but it has to be done correctly,” he said.

Rig winterization involves attention to many details — for example, electrical wiring and hydraulic hosing needs to be Arctic rated, especially given the likelihood of having to transport an unheated rig over a lengthy ice road in extreme cold before a drilling operation starts. Even rigs from Canada require customization for Alaska conditions, Hebert said.

Again, a firm contractual commitment well in advance of when a rig is needed would be essential to embarking on a rig winterization project. And the rig market outside Alaska is tight, potentially making rig acquisition difficult.

Bringing in new rigs is also an option.

Three and a half years ago Nabors delivered the first purpose-built AC rigs for the North Slope in 13 months, from design to delivery. Two and a half years ago the company delivered CDR-2 to ConocoPhillips at Kuparuk; it was the first purpose-built coiled tubing rig designed for the Arctic. It took 18 months, from design to delivery.

Tax, in-field demand are factors

“We could easily run out of rigs again next winter,” Hebert said. And some of the Nabors rigs currently under contract for exploration are especially suitable for use on North Slope oilfield well pads, thus making these rigs especially desirable for in-field work, he said.

There is time to refurbish mothballed rigs for next winter, but Nabors would need that up-front commitment for rig use before bringing a rig out of hibernation, he said.

Seven Doyon rigs

Six of those rigs are under contract to North Slope oilfield operators for the coming winter and the other rig, the Arctic Fox, is under contract to Repsol for exploration drilling.

The Arctic Fox is a lightweight rig that can be trucked almost anywhere, he said.

Doyon used to own another lightweight exploration rig, the Arctic Wolf, but that rig is now in Canada; it is owned by Akita Drilling and has been disassembled, Wilson said.

One of the Doyon rigs under contract for in-field work has proved especially successful in the past for exploration drilling, although any of Doyon’s rigs could potentially be used for exploration, depending on whether the transportation route to the drilling site can accommodate the rig’s weight, Wilson said.

Build rather than convert

However, rig construction might take 16 to 18 months and the construction cost would raise the issue of how much a company like Doyon would be willing to invest on speculation, Wilson said. The investment risk would best be managed by linking rig construction to a specific drilling project, he said.

Wilson also commented on the difficulties that Doyon experienced a few years ago when trying to use a Canadian rig for Arctic Alaska exploration. Severe cold spells in Alaska seem to last longer than in the areas of Canada where Canadian rigs operate, and northern Alaska can also experience challenging wind conditions, he said.

Kuukpik’s 3 rigs drilling in fields

Kuukpik anticipates its rig being available for drilling on other projects in the winter of 2012-13, Randy Hicks, general manager of Kuukpik, told Petroleum News on Nov. 28.

Nordic-Calista Services has three drilling rigs in operation on the North Slope. Although one of these rigs was used in an exploration project a few years ago, all of the rigs are currently under contract for in-field drilling and are likely to remain in that situation for the foreseeable future, Udo Cassee, Nordic-Calista’s operations superintendent, has told Petroleum News.

Four-month jobs tough sell

Or training new workers but only being able to guarantee them a few months of work a year in one of the harshest environments in the world.

In most regions of the country exploration drilling is allowed year-round, using temporary gravel roads to reach road-less tracts of land.

But temporary gravel roads are rejected by state, federal and borough regulatory agencies in Alaska, which prefer winter ice roads and pads, thus limiting the annual exploration season to 3-4 months.

Jim Weeks, managing member of Alaska independent UltraStar Exploration and former ARCO Alaska executive, recently wrote a letter for an early November special meeting of the House Resource Committee, meeting to hear testimony on impediments to filling the Trans Alaska Pipeline System, or TAPS.

Weeks proposes a change to the current lease form by the Division of Oil and Gas that requires the use of ice roads and pads, saying allowing temporary year-round gravel roads could lower the cost of exploration — and speed up both exploration and development of new fields.

“As it now is, the successful bidder at a lease sale is awarded a contract to explore, develop and extract oil and gas from that lease,” Weeks wrote. “The contract stipulates that there will be no exploration on the lease except from approved ice roads and pads, built only when there is sufficient snow cover and frozen depth to carry the heavy loading of drilling rigs and equipment.

“This restricts the exploration drilling window to generally mid-January to no later than about April 15, depending upon the status of the well,” he said.

“So there is essentially a 90 day period in which to construct the ice road and pad and move in the rig and associated 50 truckloads of parts, plus camps, shops, generators, fuel storage tanks and other supporting facilities,” restricting the number of wells that can be drilled each year.

“Companies like Repsol, with nearly 400,000 acres to explore and delineate, will require multiple years to prove up commercial reserves and make plans for development. So it will need to re-build the needed ice roads and pads multiple times before development decisions are made. Linc Energy faces a similar challenge at Umiat,” Weeks said.

“The state should let private industry decide the most efficient and lowest cost manner to conduct exploration,” he said. “Ice roads and pads may be the best way forward for close in exploration. But for access to locations further from the road system, re-building ice roads every year for several years gets pretty expensive.”

If existing, or newly constructed permanent or semi-permanent gravel roads, airstrips and drilling pads would be more cost effective, they should be allowed, Weeks said.

Year-round access to leases being explored would shorten the time to production by years, he said.

“The ability to drill throughout the year will also significantly shave the winter peaking demand for drilling equipment, materials and manpower, thereby further reducing costs,” for the operators.

“An all-weather road to the location of the drilling also provides year round access for emergency response equipment and personnel, adding another level of safety to the already very high operating standards for humans and the environment,” Weeks said.

—Kay Cashman