Alaska terminates BP’s Slugger unit

Kay Cashman, Petroleum News publisher & managing editor

The state of Alaska terminated the 79,508 acre unit Slugger unit on May 16 because the owners of the eastern North Slope prospect had not met a commitment to drill the first Slugger unit well by May 15, state officials told Petroleum News May 28.

State Division of Oil and Gas Director Mark Myers notified unit operator BP Exploration (Alaska) by certified mail of the termination. He said the primary terms of 11 of the unit’s 14 leases have expired and had to be surrendered immediately, plus a drilling extension charge of $430,000 was due by June 1.

Myers said two of the remaining Slugger leases have not expired and will continue in force until Aug. 15. Oil and gas lease ADL 389656, issued Dec. 1, 2001, with a seven year primary term, will expire Nov. 30, 2008, unless extended.

An appeal of this action must be filed within 20 calendar days; if no appeal is filed by that time, the termination becomes final 31 days after issuance, he told BP.

Hunt for partners unsuccessful

Sometime in 2001 or early 2002, the three partners had farmed out part of their working interest in the unit to independents Forest Oil and Andex Resources in exchange for a disproportionate share of the costs of Slugger No.1. Under the deal, Andex and Forest would each receive approximately a 20 percent working interest in the unit.

But they needed one more partner.

In early 2002 it appeared that Anadarko Petroleum would be that partner, but then Andex dropped out of the deal. Shortly thereafter, Anadarko spokesman Mark Hanley said his company had decided not to participate in the prospect.

A BP spokesman told Petroleum News that his company was offering “very attractive terms” for a working interest in the unit, which BP estimates holds some 280 million barrels of oil.

“BP’s future exploration focus is on acreage close to existing infrastructure. While Slugger is an interesting prospect, it does not fit this strategy,” he said, referring to BP’s decision to close its frontier exploration office in Alaska and to concentrate on infield exploration where the company has had its most success.

Risky but could be brought on-line quickly, says Chevron

Badami was expected to hold 120 million barrels of recoverable oil and produce approximately 35,000 barrels per day at its peak. Instead, the unit is producing in the range of 2,000 barrels a day.

In 2001, a Chevron representative told Petroleum News, “One of the reasons we like Slugger is it should ring the cash register faster than our other North Slope exploration prospects since, if successful, the production will likely be processed at the existing Badami facilities.”

Bob Howard, vice president of Chevron’s Alaska business unit, said Sept. 9, 2002, that his firm was “concerned by the lack of interest in Slugger. There is a fair share of risk along with reward. … Another partner will clearly have to be obtained. We’re not ready to take on more working interest in this project than we already have.”

Exploration well would cost $16-$19 million

Well costs, BP said in its brochure, were estimated to be $16 million to $19 million for an initial exploration well, with completion running $500,000 to $1 million.

Development wells were expected to cost $5 million to $11 million each.

BP’s total project cost estimates, including everything from finding and development to transport to the West Coast, was listed as $12-13.50 per barrel.

In September 2002, shortly after BP told Petroleum News it would not be drilling a Slugger well the following winter because it was short one partner, Myers said “it isn’t over until it’s over.” He said the Slugger unit deadlines could be extended if “it’s in the best interest of the state to do so. We would need reasonable assurances from BP that they were going to get the capital to explore and be compensated for lost time.”

Myers said in mid-May that no extension had been requested by BP.