Providing coverage of Alaska and northern Canada's oil and gas industry
September 2022

Vol. 27, No.37 Week of September 25, 2022

Pikka in great detail

Part 1 of 2: Santos Alaska subsidiaries lay out pipeline-related plans to RCA

Kay Cashman

Petroleum News

Remember the estimate of 160,000 barrels of oil per day possible from the Pikka unit? Well, it is real over time if additional Pikka Unit development is sanctioned according to information provided by Santos Limited Alaska subsidiaries in a mid-September public hearing held by the Regulatory Commission of Alaska, or RCA.

See graphics for this story in the online PDF.

As previously reported. Pikka Phase One (Drill Site B) has been sanctioned by the unit’s working interest owners; it will produce 80,000 bpd of oil starting in 2026. If sanctioned the additional 80,000 bpd would come from within the Pikka Unit, specifically from two additional drill sites (A and C), and “some possibilities” in the northern part of the unit. None is likely to come from nearby discoveries in the Horseshoe unit (Horseshoe and Stirrup wells) or the Mitquq well in the Quokka unit, although at one point in the hearing the Mitquq discovery was mentioned as a possible tie-back to Pikka.

Purpose of hearing

The Sept. 16 hearing was about Oil Search (USA)’s application to RCA for a certificate of public convenience and necessity, or CPCN, to operate the Pikka Sales Oil Pipeline, for permits to build the pipeline and connect it to the Nanushuk Processing Facility, and for the authority to operate the interconnect facilities, as well as for approval of the connection agreement.

Quite a mouthful, but in essence it was Oil Search (USA)’s compliance filing in response to an RCA order.

Individuals from Santos subsidiaries Oil Search (USA), or OSU, and Pikka leaseholder and operator Oil Search (Alaska), or OSA, gave detailed presentations about their plans at the Sept. 16 public hearing in Anchorage, which included a slideshow and a Q&A session.

Some of their testimony and most of the information from the Q&A will appear in next week’s Petroleum News as part 2 of this article.

Fencil, Herrera, Anglen and Knecht

Those making presentations in the RCA hearing were as follows:

* Kollin S. Fencil

* Troy H. Herrera

* Ben Anglen

* Charles H. “Chuck” Knecht

In this part of the story, Part 1, Kollin S. Fencil’s testimony will be featured. Fencil is senior vice president of operations for OSA and president of the Pikka Sales Oil Pipeline construction project for OSU.

But it seems appropriate to insert one piece of information from Anglen at this point in the story. Lead pipeline engineer for OSA and acting secretary and technical manager of the Pikka Sales Oil Pipeline construction project for OSU, Anglen noted the current design of the pipeline is expected to deliver 80,000 bpd during the initial phase of operations, with subsequent development phases the maximum throughput capacity could increase to 160,000 bpd.

Capacity can be increased, he said, up to 160,000 bpd of oil by injection of drag reducing agent at the Nanushuk Processing Facility or adding a booster pump at the tie-in pad, or TIP: “The design pressure is 1,480 psig and the normal operating pressure will vary from 1,400 to 800 psig,” Anglen said, “depending upon rates and tie-in pressure at the Kuparuk Pipeline tie-in location.”

Returning to Fencil, he told hearing attendees that his “current managerial responsibilities include supporting concurrent exploration and pipeline projects, including appraisal activities, and managing production operations.”

In his capacity as president of the Pikka Pipeline Project, Fencil’s duties include “management of the planning and construction of the pipeline, and management of its operation once it is completed and in service.”

Fencil also manages the “functional capabilities of health, safety, and environment, and Alaska supply chain matters,” working closely with various OSA, OSU and Santos departments, including the projects, exploration, subsurface, environmental, finance, commercial, legal, people and culture, and external affairs departments, to advance Alaska development and deliver production and pipeline transportation operations.

“I ultimately drive the implementation of strategic plans for OSA and have direct accountability for operational activity for OSA and OSU in Alaska,” Fencil said, adding “I also manage community relationships, assure organizational readiness for production and pipeline operations, and manage safe, reliable, and legally compliant operations in Alaska.”

Fencil has worked in the oil industry for 26 years in various technical, commercial, and engineering capacities, including being vice president or senior vice president for OSA for nearly three years.

Prior to that Fencil worked for BP for more than 14 years in eight managerial and engineering positions in Indiana, Texas and Alaska. Before that he worked nearly six years for ExxonMobil.

OSU role, partners

As to OSU’s role as applicant, the company will be the owner and operator of the Pipeline - and the leaseholder under the Pikka Pipeline Right-of-Way Lease pending issuance by the State Pipeline Coordinator’s Section, Fencil said.

One of the more interesting topics RCA asked Fencil to address was the possibility of potential partners in the project that would change the financial structure of how the pipeline will be financed.

“As stated in the application, the construction of the pipeline is expected to be financed by equity of OSU and through contributions of equity from its parent companies. Santos has been meeting all financial obligations of its subsidiaries, including POSL, OSU and OSA, through net operating cash flows from its producing assets in Australia and PNG and from a mix of debt facilities,” Fencil said. (POSL stands for parent Papuan Oil Search Ltd.)

“However, as noted in the application, the pipeline is eventually expected to be owned by an entity that will be owned by affiliates of the parties to the Pikka Unit - currently OSA (51%) and Repsol E&P USA LLC (49%),” Fencil said.

“Transfer of the CPCN and the pipeline would occur upon the future creation of such a pipeline company entity,” he said.

OSU and the “future pipeline entity would file a transfer application with the RCA at that time,” Fencil said, adding that “no prospective partner in the Pikka Pipeline Project is expected at this time.”

Fencil’s testimony also addressed the important roles of OSA, Santos and other Santos affiliates in the Pikka Pipeline Project.

Pipeline schedule

OSU currently expects to begin construction of the vertical support members, or VSMs, and/or horizontal support members, or HSMs, on which the pipeline will be placed in or around the fourth quarter of 2023.

Pipe installation is slated to begin in 2024, Fencil said, with construction of the Pikka Project infield pipelines and the Pipeline occurring “over multiple seasons beginning in 2023.”

The current Pikka Sales Oil Pipeline completion date is expected to be the third quarter of 2025, Fencil said.

Common carrier line

OSU submitted the application for a new CPCN to construct and operate the pipeline, which is a proposed common carrier line needed to transport oil produced from the Pikka Unit to market, in April 2022, Fencil said.

The proposed pipeline will originate at the Nanushuk Processing Facility in the Pikka Unit at its west end and terminate at a proposed connection with the Kuparuk Sales Oil Pipeline on its east end (collectively, the “Interconnect Facilities”). From there, oil will be transported via the Kuparuk Pipeline to the Trans-Alaska Pipeline System, or TAPS, for ultimate transportation to market.

The Nanushuk Processing Facility, or NPF, will support oil production activities as well as processing facilities to prepare the oil for shipping on the pipeline.

The pipeline, Fencil said, will be approximately 22.2 miles long (the distance from the NPF tie-in to the proposed Kuparuk Pipeline tie-in), will “consist of 16-inch diameter pipe from NPF to the TIP, and 12-inch diameter pipe from the TIP to the Kuparuk Pipeline.”

The minimum engineering design life of the Pipeline is estimated to be 30 years, Fencil said.

Need for pipeline, interconnect facilities

“As explained in the application, the Nanushuk oil field in the Pikka Unit is one of the largest conventional oil discoveries made in the United States in the last 30 years,” Fencil said.

“However, there is currently no facility to transport oil produced and processed from the Pikka Unit to TAPS. The proposed pipeline will provide safe, affordable, and compliant transportation to market for oil produced from the Pikka Unit, thus ensuring the marketability,” he said.

“The pipeline is also expected to support throughput in both the Kuparuk Pipeline and TAPS, slowing or offsetting throughput declines and keeping transportation rates lower on those pipelines than they would otherwise be without the Pikka Unit production throughput. Lower transportation rates would very likely help extend the life of other fields which use those pipelines,” Fencil said, noting “all of this would benefit the state of Alaska through higher economic activity, jobs, and revenue.”

The Pikka Unit is on state of Alaska and Alaska Native corporation land. The “state and the Arctic Slope Regional Corp. are expected to receive royalties from development of the Pikka Project. Because a portion of the Pikka Project is on Kuukpik Corp. land, it would receive payments associated with surface use,” Fencil said.

Furthermore, he said, the “interconnect facilities will prevent redundancy in North Slope infrastructure and thereby reduce costs and environmental hazards and increase safety and operating efficiency. Like the pipeline itself, the interconnect facilities will also stimulate economic activity in the area and help extend the life and economic viability of other North Slope oil fields. The proposed connections will make more efficient use of rights-of-way, and existing infrastructure will be put to its highest and best use.”

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