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THE INDEPENDENTS 2003: XTO boosts reserves at old field East flank test well a disappointment but first hydraulic lift pump a success Kay Cashman Petroleum News
It has been comparatively quiet in Cook Inlet this past year for XTO Energy, which employs 30 people out of its Nikiski office on Alaska’s Kenai Peninsula.
The company drilled just one new well in 2003, a horizontal sidetrack, as compared to seven horizontal sidetracks (at a cost of $3 million to $5 million each) and an injector well in 2001 and 2002.
XTO, which purchased platforms A and C at the Middle Ground Shoal field from Shell Oil in 1998, kept one of its two rigs busy drilling new holes for most of 2001 and 2002 but for the last year the company has been focused on doing workovers on platform C wells.
Spending in Alaska was down, too, from $15 million in 2002 to approximately $7 million in 2003 versus the $16 million XTO expected to spend at Middle Ground Shoal this past year, XTO Senior Vice President Doug Schultze told Petroleum News Oct. 15.
The main reason for the drop in spending and lack of new drilling was disappointing results from an east flank test well, C13-13 LN, which was spud in November 2002 and completed in January.
After having tremendous success pumping up the reserves on the west flank of the field, C13-13 LN was the first test of the far reaches of the reservoir on the east flank. Although the area has been waterflooded since the 1960s, XTO hoped to find some “trapped/banked oil” and “potentially identify additional east flank drill locations” for more new wells in 2003 and beyond, Schultze said in November 2002.
But results from the east flank horizontal well proved “a disappointment,” he said in October. The well is “making 150 to 160 barrels of oil a day now but that has been a fairly recent development. … It’s done very poorly all year. We just perforated some new pay last week and it looks as though we’ve tapped into some better pay.”
Schultze said the company’s 2004 budget “is still under evaluation. However we do expect to do some additional drilling. Our expenses for 2003 — routine operating expense which includes employee salary — will be approximately $8.4 million.”
Hydraulic lift pump a success In addition to bringing production up in the east flank well, another piece of good news came from the company’s test of a hydraulic lift pump, which was installed in a well on platform C, replacing a standard gas lift system.
The result was an immediate increase in production from “100 barrels a day to 150 barrels in the well, which was encouraging,” Schultze said.
XTO has identified another candidate for a hydraulic lift pump, he said. “We’ll probably try another well later this year or early next year. If the next well looks good then we have to reconsider some things, because if you go full scale, using all hydraulic lift pumps, then you have to redo some facilities and commit quite a lot of money for new equipment.”
Currently XTO separates oil and water onshore. They would need clean oil or water on the platform if they switch to hydraulic pumps on all their wells, Schultze said.
“On other platforms in the inlet, for example, they separate oil and water offshore so they have different vessels and equipment than what we have on our platforms. … Switching operation modes would represent a significant investment for us, so we would want to think it through carefully before we jump into it.”
Schultze said the west flank of the field is “pretty well developed now. It’s where we have devoted most of our time. There is probably not a whole lot of additional drilling opportunity over there.”
XTO will continue to do workovers, he said, on an as-needed basis.
“The water injection, water flood, has done real well. … We’re looking at some reservoir simulation — that’s something we are always updating and looking for opportunities,” Schultze said.
By the end of 2002, XTO had converted three Middle Ground Shoal wells to water injection in order to waterflood the west flank, a project Schultze described as “critical” to XTO’s success at the Cook Inlet field.
The company, which has a reputation for buying oil and gas producing properties that are no longer profitable for larger companies and employing what it refers to as ‘A-Level’ science teams to develop hidden upsides, has been getting an average of 750,000 barrels of oil reserves per well, Schultze said. The first seven horizontal wells in the west flank came on at an average of 400 barrels a day and, together with the eighth well drilled in the east flank, are currently producing at an average rate of 200 barrels per day. Jurassic possibilities left to explore But there could be additional potential deeper in the field, something XTO has been looking at for a while. Schultze talked to Petroleum News about it in November 2002: “There actually is a formation below the Hemlock called the Jurassic that has been drilled in the inlet once or twice before,” he said, but not commercially produced.
A well was drilled into the Jurassic in the McArthur River field, but while it came on with very high production it dropped off very quickly, Schultze said.
“And we believe that with some different techniques, different completion methods, that maybe you can get something that will produce long term,” he said. If the company can get a good test, it will then look at whether it could move to full development.
The company’s reserves have “easily 10 and probably 15 years of economic life left. And if the Jurassic were to come into play,” the economics could change significantly.
“But we’re having a little trouble justifying that project — going into Jurassic — but we’re still hopeful we can do it at some point,” Schultze said in October.
XTO’s Middle Ground Shoal properties produce about 3,800 barrels per day from the two platforms. Without the company’s development work to date, current production would probably be at about 2,800 bpd, Schultze said.
When XTO purchased the platforms from Shell it picked up 8,866 net acres and 12 million barrels of reserves. By late 2002, XTO estimated it had increased the reserves by 42 percent. A new reserves report is due out in 2004.
The west flank, where the company had its most success in pumping up reserves, looks narrow on a surface view, he said: “But if you look at the structure, it’s a very turned over structure. … And so you have the whole reservoir basically turned over on its side, which makes for challenging development.”
Schultze said “The program overall, even with the east flank disappointment, has still been very good. We’re keeping production flat which is significant for an old field.”
Drilling into coal seam for cheap gas source XTO has added significant coalbed methane acreage to its coffers this past year with its purchase of Williams’ properties in the Raton basin. It’s something the company is watching in Alaska, but “there is nothing on the immediate horizon,” Schultze said. However, XTO is currently making plans to test a shallow coal seam in a shut-in well on C platform, looking for gas to use at its platforms.
The company used to buy gas from Unocal’s Baker platform, but since that has been shut down it has had to buy gas from onshore.
“We use 700,000 cubic feet per day in addition to what we produce. This adds a significant amount to our operating expense. We’d like to have a source at our platforms,” Schultze said.
The coalbed methane XTO is evaluating is “not a huge play. … It’s a test. We’re looking at completing one or two wells to test the coals. Normally you don’t view coalbed methane as a one or two well operation but there are exceptions to the rule. … We’ve got some shut-in wells where we can test it, so we are going to give it a shot,” he said. What’s next in Alaska? Does XTO have any interest in picking up additional properties in Alaska?
“We have reviewed several prospects up there and we currently have no interest in any of those but we’re always looking at opportunities that come up and would love to find a way to leverage our work force up there,” Schultze said.
The company’s main focus right now is East Texas.
“Clearly that’s our growth engine right now. We’ve got several years of identified locations to drill in East Texas, but we’ve also been very active in the San Juan basin, and … the Raton basin … will be a growth area for us in the coming months,” he said.
XTO has purchased approximately $600 million worth of properties so far in 2003. “Our stated goal is a total of $1 billion. We’re generally looking for properties already in production that someone else has given up on. Usually we look for fields currently active or active in the past and then go in and see what we can do with them. We do have an exploration budget but exploration is not likely to be our focus,” Schultze said.
New man at helm for Alaska Schultze was vice president for the Permian basin and Alaska for XTO up until recently. He has been promoted to senior vice president of the Midcontinent division for XTO, which initially will include oversight of his replacement in Alaska.
Kyle Hammond has replaced Schultze as vice president of operations for the Permian basin and Alaska.
Hammond is based in Midland, Texas; Schultze has transferred to Oklahoma City, Okla. Hammond is a 1985 graduate of Texas A&M University with a bachelor of science in Petroleum Engineering. Prior to joining XTO Energy, he worked for BOGO Energy and Oryx Energy. His previous assignment with XTO was engineering manager, Freestone trend, in Tyler, Texas.
According to company reports, XTO’s oil and gas reserves were approximately 3.8 trillion cubic feet equivalent by the end of the third quarter 2003, making it the fourth largest owner of domestic gas reserves among the independents. The company said that it has a market capitalization of $4.2 billion and an enterprise value of $5.3 billion.
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