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Variety of Slope development options Smaller firms talk opportunities, challenges, of known accumulations, exploration at Resource Development Council conference KRISTEN NELSON Petroleum News
The Resource Development Council heard from a group of smaller North Slope producers, developers and explorers Nov. 17 at its annual conference in Anchorage.
Hilcorp Alaska and Caelus Alaska are producers with known accumulations or discoveries they would like to develop; Armstrong is exploring but also in the process of developing its Pikka discovery; and Great Bear is in pure exploration mode.
Hilcorp Hilcorp is the only one of the companies active in both Cook Inlet and on the North Slope.
David Wilkins, senior vice president for Alaska for Hilcorp, reviewed the company’s activities in both basins.
Hilcorp began drilling in Cook Inlet in 2012, taking over properties previously owned by Chevron and Marathon. The company’s initial job, Wilkins said, was to stabilize natural gas production in Cook Inlet. The company’s drilling activity peaked at 23 wells in 2014.
Work is ongoing offshore - where Hilcorp produces oil - at the MacArthur River field and Granite Point and there are development drilling opportunities at the Middle Ground Shoal field based on 3-D seismic shot in 2015.
Onshore Hilcorp will drill to meet gas demands, with 45 wells drilled since 2012, and some 50 miles of new 2-D seismic completed to support future exploration, Wilkins said.
But the company’s plan for 2017 is based on the economy of the day, he said, with short-term, not long-term, contracts.
On the North Slope Hilcorp is permitting the Moose Pad at Milne Point, which will allow for 76 wells and up to 15,000 barrels per day of production. Construction will begin when permits are approved with first drilling expected in 2018 and first production in 2019.
He also talked about the Innovation rig the company is commissioning at Milne Point, the lightest modular rig on the Slope capable of drilling wells on 10-foot spacing, allowing it to work in the tight quarters at Endicott and Northstar.
Hilcorp is also permitting development at Liberty, east of Prudhoe, which could add 60-70,000 bpd to the trans-Alaska oil pipeline and would have a 15-20 year life. With Liberty, we know where the oil is, the challenge is how we do it, Wilkins said.
Hilcorp is planning the Liberty development based on Northstar, which BP developed from a manmade gravel island with buried lines to shore. Northstar is one of the properties Hilcorp acquired from BP. It had first production in October 2001 and has now turned 15.
Caelus Caelus is the other company in this group with existing North Slope production. The company is producing at Oooguruk, which it acquired from developer Pioneer Natural Resources Alaska, and is developing Nuna, which is the onshore companion to offshore Oooguruk.
Pat Foley, senior vice president for Alaska operations, said Caelus was attracted to Alaska by the state’s land and resources, and also by the fiscal regime in Senate Bill 21. Caelus is the operator and has a 70 percent working interest at Oooguruk. Nuna is on hold, Foley said, but ideally will receive full funding next year with first oil in 2018.
The company recently announced a world-class discovery at Smith Bay, 125 miles west of the Colville River unit. The company plans to be back at Smith Bay, which it believes has the potential to produce 200,000 bpd, in 2018 to drill a deep well which will be tested. Foley said that because the oil at Smith Bay is light - from 40 to 45 degrees API gravity - it can be coaxed out of the reservoir’s tight rocks.
Foley talked about the impact of recent and proposed oil tax changes, and said that compared to SB 21, the changes in House Bill 247 had already reduced the value of projects to 62 percent of what they were under SB 21, while the proposal in Senate Bill 5005, which did not pass, would have reduced that value to 15 percent compared to SB 21.
Foley said Caelus had $107 million in oil tax credits, expected to rise to $207 million when all were submitted.
Armstrong Armstrong Energy has been in Alaska since 2001, buying leases and then bringing in partners to develop Oooguruk and Nikaitchuq before exiting with a sale to Eni. The company then brought the North Fork gas field on the Kenai Peninsula into production.
The company returned to the Slope in 2008, acquiring new acreage and ultimately bringing Repsol in as a partner and drilling 16 penetrations.
Ed Kerr, director of Armstrong Energy, said three pads are planned at the company’s Pikka unit, and a central processing facility would process 120,000 bpd. The development is on Kuukpik Corp. land, and the company is working toward a surface use agreement, Kerr said. The state and Arctic Slope Regional Corp. own the subsurface.
An environment impact statement is needed for the project and that is underway, he said.
An estimated 750 million barrels are recoverable from the three planned pads, Kerr said, with sealift and civil and pipeline work scheduled for 2019-21, drilling and sealift delivery in 2020-21 and first production in 2022.
Two issues for the project are taxes and regulatory uncertainty, he said, warning that taxes should not be punitive, driving people away.
Commenting on how long it takes for a project in the state, Kerr said the first money went in for the project in 2008 with lease acquisition and first money won’t come back to the company until 2022, a 14-year gap.
Great Bear The company still in exploration mode is Great Bear Petroleum, which has a large lease position south of Kuparuk and Prudhoe, straddling the trans-Alaska oil pipeline and the Dalton Highway.
Pat Galvin, Great Bear’s chief commercial officer, said the biggest challenge in the area is the lack of data. While Great Bear came into the state focused on shale potential, there are also conventional plays in its acreage, and Galvin said the company has been focused on conventional oil for more than three years now.
The company drilled two stratigraphic wells in 2012 and one conventional well in 2015, but Galvin said flooding that year cut short the company’s opportunity for testing. It has also acquired 3-D seismic over its acreage position.
Maps which Galvin showed identified two groups of four prospects each. He said exploration dollars are risk dollars - because exploration often fails and those dollars don’t come back - making state participation critical.
He called for a stable and reliable fiscal system and said the state must fulfill its obligations in a timely manner.
Great Bear investors have put up about $80 million and the state owes Great Bear tens of millions, he said.
A stable environment is needed for operation and the state needs to find political equilibrium in the production tax system - fix it and then leave it alone, Galvin said.
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