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McCovey prospect unit agreement approved State, federal agencies agree to seven-tract unit in exchange for commitment by operator Phillips to drill by April 30, 2002 Kristen Nelson PNA News Editor
The Minerals Management Service said Sept. 8 that a joint federal/state unit agreement submitted by Phillips Alaska Inc. for the McCovey Prospect has been approved.
The unit includes three federal and four state of Alaska leases in the central Beaufort Sea about three miles east of the Northstar field and seven miles north of the Prudhoe Bay field. Approval of the unit agreement became effective on Sept. 1.
State approval of the unit was also effective on that date.
The unit agreement requires that all work commitments be completed by April 30, 2002, including drilling an exploratory well. Phillips plans to construct an ice island this winter to drill the 1 McCovey exploratory well.
The MMS said Phillips will submit an exploration plan and application for permit to drill the 1 McCovey this fall.
The agency said unitization ensures the efficient exploration and development of the reservoir while drilling fewer wells and using fewer production platforms and also allows more oil to be recovered and ensures that the federal and state governments receive more royalties from future production. State royalty 16.67 percent Royalty on the three federal leases is 12.5 percent. The federal leases have a 10-year primary term beginning Aug. 1, 1991.
Royalty on the four state leases is 16.66667 percent. Those leases also have a 10-year primary term beginning Aug. 1, 1991. The state also receives 27 percent of the royalty from the federal leases in the unit area.
The unit agreement extends the term of the leases for as long as they are in the unit.
The state noted that one of its goals in approving the unit is to ensure that the working interest owners do not favor the federal leases — which have the lower royalty rate — in development of the unit.
The leases are held 50/50 by Phillips and Chevron U.S.A. Inc. Phillips will be the unit operator.
Chevron held 100 percent interest in the state leases until Nov. 1, 1998, when it transferred half of its working interest to ARCO Alaska Inc. which has subsequently become Phillips Alaska. Exploration well on federal tract Phillips told the state that its 1 McCovey exploration well would be drilled from an ice island on federal lease OCS-Y-1578. Three exploration wells have been drilled in the vicinity of the McCovey unit, the state Department of Natural Resources said in its Aug. 24 finding in favor of the unit.
A stratigraphic test, the 1 Reindeer Island, was drilled by Sohio in 1979 in the area included in the McCovey unit. The 1 No Name Island was drilled by Amoco in 1981-82 southeast of the unit; it was drilled to a total depth of 11,320 feet subsea and plugged and abandoned after failing to encounter economic hydrocarbons. The 1 Cross Island was drilled by Gulf in 1983-84 east of the unit to a total depth of 14,194 subsea and was also plugged and abandoned when it failed to encounter economic hydrocarbons.
The state said that all three wells provide data on the Brookian section to be encountered in the McCovey unit area. State Department of Natural Resources technical staff evaluated the data provided for the unit and determined that Phillips has demonstrated that a legitimate geologic prospect may occur in the basal Brookian interval at a depth of 13,000 feet or less.
The two-year initial unit plan requires that Phillips enter into a formal drilling contract for the proposed 1 McCovey well by April 30, 2001; commence drilling or provide documentation that at least $3 million has been committed toward drilling by July 31, 2001; and commence drilling the 1 McCovey by April 30, 2002.
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