|
State, leaseholders reach agreement on Slugger unit exploration plan Time to drill second well in area south of Point Thomson could be extended one year with payment of $400,000 Kristen Nelson PNA Editor-in-Chief
A compromise has been reached by the state and the lease owners on the exploration plan for the proposed Slugger unit south of Point Thomson.
BP Exploration (Alaska) Inc., as operator, and Chevron U.S.A. Inc. and Phillips Alaska Inc., the other working interest owners, proposed a single exploration well for the 79,508 acre unit and told the state they would complete 3-D seismic evaluation, commit to drill the well by June 15 and complete the well by June 15, 2003, or pay the state a penalty of $300,000 if the well was not drilled.
The Department of Natural Resources Division of Oil and Gas issued a decision March 30 conditionally approving formation of the unit, but requiring two exploration wells, one in each of two areas of the unit, and setting penalty payments at $380,000 if the A area well were not drilled and $360,000 for failure to drill the B area well.
The working interest owners had until April 30 to agree to the state’s terms, a deadline which was extended to May 2. Several changes in May 2 amendment Division of Oil and Gas Director Mark Myers said in the May 2 amendment to the March 30 findings and decision that the state and the working interest owners discussed the March 30 plan and agreed to several changes.
Reprocessing and interpreting 3-D seismic over the unit will still be completed by June 1 and on or before June 15 the working interest owners will present consensus interpretation of the 3-D seismic to DNR. The working interest owners still have until June 15 to make a drill, no drill, decision on the first well. If they decide not to drill, the Slugger unit will automatically terminate effective midnight June 15.
The May 2 amendment still requires two wells over the life of the agreement, but while the March 30 decision required both wells to be drilled within three years, the amended decision allows the second well to be drilled in year four, but imposes a $400,000 penalty on the companies if that well is not drilled until the fourth year.
That $400,000 penalty, Myers said, is “designed in part, to compensate the state for a year’s delay in re-offering certain leases, should the unit terminate for any reason, including failure to drill a second well.” The extra year to drill the second well, with compensation, “is reasonable in light of the remote location of the unit, the lack of infrastructure nearby, the high cost of drilling wells, and the possibility that other regulatory agencies may require the completion of drilling by April 1, rather than the later dates historically required,” he said.
State officials told PNA that that eight of the 14 leases, 45,184 acres of the 79,508 acres proposed for the unit, would have expired in March 2001 if the unit had not been formed. Some of the lapsed leases would have been included in the state’s upcoming Oct. 24 North Slope areawide oil and gas lease sale. Non-drilling penalties changed The penalty for not drilling the first well by May 15, 2003, was raised to $430,000, but this penalty now covers “failure to drill this or any other well in the Slugger unit.”
A drill, no drill, decision for the second well must be made by June 15, 2003. If the decision is made not to drill the second well, the unit will terminate effective midnight, June 15, 2003.
If the decision is made to drill the second well, it must be drilled by May 15, 2004, or a $400,000 “delayed drilling charge” will be dune June 1, 2004. If the second well is not drilled by May 15, 2004, it must be drilled by May 15, 2005, or the unit will be automatically terminated May 15, 2005, and the working interest owners will pay the state an additional $400,000 on or before June 1, 2005.
The second well may be sidetracked from an earlier well bore, but must be at least 1,500 feet from the original well bore and must penetrate the target Kemik interval at least 1,500 horizontal feet from the penetration made by the original well. The four-way closure Myers said that while the revised plan permits two wells within the first three years in area A, rather than requiring one in each of areas A and B, “it requires that the wells delineate what currently appears to be two separate geologic features — inside and outside the four-way closure.”
The revised plan of exploration says information presented by the working interest owners and technical presentations to DNR staff “suggest a four-way closure” within the unit, and the state is requiring that “if such closure remains probable in light of the drilling, logging and testing results” from the first well, then the second well must be drilled outside the four-way closure or the working interest owners must pay the state $400,000. This Myers said, is similar to the $360,000-$380,000 payment required in the original plan if both wells were drilled only in area A or area B.
While the revised plan does not provide for contraction during its term as the original plan did, “it puts the working interest owners on notice that contraction may be required as a condition for approval of a second plan,” Myers said.
While the revised plan does not require an area B well, it still requires two wells, and an area B well would be required in any second plan for the unit. And, Myers notes, the state “expressly maintains its right to contract the unit should it not be appropriately delineated early in the life of the unit.” Further wrinkles in revised plan The revised plan includes language stating that the state’s remedies for failure to drill do not include “specific performance — that is, compulsory drilling of the two wells — but only remedies otherwise available to the state (such as the payment of the charges specified in the plan, unit contraction, and unit termination).” Myers said that DNR “did not intend to create a right to specific performance with regard to the drilling of the wells” so this addition in the revised plan “does not change the rights and remedies otherwise available to the state.”
While agreement was reached on most issues, Myers said Phillips Alaska “was not willing to agree that DNR would be the party to determine whether there still appeared to be a four-way closure in Area A after the drilling of the first well.” Philllips believes, he said, that disagreement over the issue of four-way closure would allow the state to “limit the area available for the drilling of a second well, or charge the working interest owners $400,000.”
The resolution to that problem is represented by a separate statement, signed by BP and Chevron, agreeing that if the $400,000 penalty is charged, that is if the state determines that both wells were within the four-way closure, that BP and Chevron would pay the entire $400,000.
|
