Conoco applies to add acreage at Nuna to Kuparuk River unit

Kristen Nelson

Petroleum News

ConocoPhillips Alaska has applied to include Nuna in the adjacent Kuparuk River unit. Nuna lies immediately south of Oooguruk, now operated by Eni, immediately east of the Oil Source-operated Pikka unit and immediately west of the Kuparuk River unit, operated by ConocoPhillips.

ConocoPhillips Alaska made public its agreement to purchase 100% ownership in Nuna from Caelus June 17. The prospect includes 11 tracts covering 21,000 acres, ConocoPhillips said, and will be appraised over the next several years.

“This transaction represents an attractive addition to our expanding North Slope position and will allow ConocoPhillips to cost effectively develop Nuna utilizing Kuparuk River Unit infrastructure,” said Joe Marushack, president of ConocoPhillips Alaska.

On June 25, ConocoPhillips Alaska applied to the Alaska Department of Natural Resources’ Division of Oil and Gas for the 12th expansion of the Kuparuk River unit with the addition of the Nuna prospect. The company told the division that development of the expansion area through existing KRU facilities will minimize environmental impacts because “the tract owners will not have to build stand-alone processing facilities solely for the benefit of these areas.” The working interest owners at Kuparuk (ConocoPhillips, Chevron U.S.A. and ExxonMobil Alaska Production) already have facility sharing agreements in place, the company said.

ConocoPhillips said reserves discovered in the expansion area “are not large enough to support the costs of full processing facilities,” and even if such standalone facilities were economic, “there would be economic waste due to the existence of duplicate facilities and services that could be provided by the KRU.”

The company also said that use of existing facilities will accelerate timing compared to development of new facilities.

Once the expansion acreage is included in the Kuparuk River unit, the working interest owners will be responsible for abandonment obligations for the existing Nuna 1 pad, the Nuna road, Nuna pipelines and Nuna well bore, consistent with abandonment obligations for all other KRU infrastructure.

Caelus work at Nuna

Pioneer Natural Resources had proposed Nuna development in late 2010, having drilled through the Torok formation for several years to target deeper oil reservoirs.

Oooguruk was initially developed from an artificial gravel island, but the Nuna satellite was too far south to be economically developed from the island. Pioneer wanted to build at least one onshore drill site and potentially standalone facilities.

Pioneer drilling in 2012 and 2013 at the Nuna 1 and Nuna 2 wells led the company to estimate Torok in a range of 75 million to 100 million barrels.

Caelus acquired Pioneer’s Alaska assets in late 2013, and by early 2014 was estimating some $550 million for new facilities and $800 million to $900 million for drilling, a price tag of some $1.4 billion.

After evaluating the geology more closely, Caelus asked the state to modify the royalty structure at Nuna, saying it would not otherwise be able to proceed. The company requested a 5% royalty rate on 11 leases until the project reached payout - when revenues cover upfront costs - and then an increase of 1.875% per year for four years, returning to the original 12.5% royalty.

The state offered a 5% royalty rate on five Nuna leases in exchange for Caelus meeting various sanctioning, spending and development targets through 2017.

The 2015 royalty reduction required Caelus to sanction the project by the end of March 2015, start spending money by the end of September 2015, spend at least $260 million and bring the field into sustained production by the end of September 2017.

Caelus requested a two-year extension in 2017, which the state denied.

- KRISTEN NELSON