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A new light in the sea: Alberta Energy moves forward with McCovey exploration New player on North Slope assumes operatorship of Beaufort unit; drilling to begin November 2002 from converted tanker managed by Fairweather Kay Cashman PNA Publisher
A subsidiary of Calgary-based Alberta Energy Company Ltd. has assumed operatorship of the McCovey unit from partner Phillips Alaska Inc. and is moving forward with exploration.
Steve Harding, AEC’s Alaska group exploration manager, told PNA Nov. 19 that drilling is expected to begin in November 2002 from the SDC unit, a converted tanker owned by Seatankers Management Co. and managed by Fairweather Inc. If the independent hits oil, he said the bottom-founded unit could, with modification, be used for the development platform.
Which one of the three equal partners in the McCovey prospect — AEC, Phillips and Chevron USA — would operate the unit if it is developed has not been decided, Harding said. “AEC will consider this opportunity should it arise, but Phillips, because of its infrastructure and facilities on the North Slope, might also be interested.”
No preferred contractors AEC will probably open an office in Anchorage in the next year, Harding said.
Procurement for exploration activities will likely be administered in essentially the same manner AEC handles procurement in their oil and gas properties around the world.
“Our preference is to hire and buy local whenever we can,” Harding said.
The company has no established alliances with contractors and suppliers elsewhere in the world that would be transferred to Alaska, he said. “Work goes out to bid on a per project basis.”
In addition to Anchorage-based Fairweather, who will manage the SDC unit, AEC has hired Mark Schindler’s Anchorage-based firm, Lynx Enterprises, to do the permitting for McCovey. Lynx, Harding said, is “doing an extremely good job.”
Retained this past summer, AEC’s first contractor in Alaska was consultant Ken Boyd, former director of the state Division of Oil and Gas. Boyd continues to represent AEC in what Harding dubbed “a variety of roles, including representing us with AOGA, helping facilitate meetings with different people. … He’s our man on the ground in Alaska. He helps us stay plugged in to what’s happening in private industry and government.”
The project that almost wasn’t Exploration at the new McCovey unit, located about 12 miles due east of the Northstar field and 12 miles northeast of West Dock at Prudhoe Bay (see map on page 19), has been on hold since last winter when Phillips halted permitting due to an unexpected shift in state regulatory policies. The plan submitted by Phillips was to drill one well, the McCovey No. 1, on federal lease OCS-Y-1578. Drilling would be from an artificial ice island, connected to shore by an ice road “during the stable solid-ice period between February and May 2001.”
Although the U.S. Minerals Management Service had approved Phillips exploration plan and oil spill contingency plan on Oct. 22, 2000, the project also had to undergo an Alaska Coastal Management Zone review by the state because an oil spill in federal waters could potentially impact the state’s coastal zone. Without state ACMP certification, no drilling could occur.
The ACMP review, overseen by the state Division of Governmental Coordination, involved several agencies, including the Department of Environmental Conservation. Senior MMS and state Division of Oil and Gas officials told PNA last year that the stipulations proposed by DEC were unreasonable, unanticipated and unnecessary; Phillips said the added regulatory burden would render the project uneconomic.
At the top of the list of complaints from MMS, the division and Phillips was the short drilling window. Instead of being able to drill until May 1 or the May 15 date that MMS considered reasonable, DEC wanted all drilling operations to cease by April 1.
Phillips said that deadline would not give it time to adequately test the exploration well and could necessitate a second season — and the cost of building of another ice road and island — to complete drilling and testing a single exploration well.
Phillips pulled the plug on McCovey permitting last spring, leaving industry observers to question whether or not Alaska’s offshore was really “open for business” as its governor and lease sale offerings suggested.
SDC costs “manageable” In July, Phillips announced it was turning over operatorship of McCovey to AEC. The paperwork for that assignment was completed in November.
AEC has been working on a new way to drill McCovey: a plan that would both meet DEC’s new regulatory policies and make economic sense.
“We take the regulatory requirements very seriously and it is our intention to comply with them. … One of the biggest challenges we had last year revolved around time. The ice island plan meant that we were not going to be able to start drilling a well until the latter part of February and then have to stop drilling April 1,” Harding said. “That simply cut things too fine.” The SDC unit allows AEC to begin drilling in November.
“It will take about 40 to 50 days to drill this well, so we will complete the initial penetration close to the New Year.”
Costs, he said, will be “manageable for the program using the SDC, but the flexibility is far superior to the ice island alternative.”
Quiet mode during whaling season The SDC will be towed by a Seatankers ice breaker from Port Clarence to location next summer. It will sit dormant, in “quiet mode,” with no occupants during the whaling season.
“Around the end of October or early November, the drilling crew will board the ship. Drilling will commence shortly thereafter, Harding said. The well will be drilled to an oil target in the range of 12,000 feet.
“Stratal geometry, seismic and an earlier well drilled by Sohio (BP) at the edge of the existing unit allows us, and our partners, to be very optimistic about what we expect to find,” Harding said.
Pre-permitting meeting goes well On Nov. 14, AEC and Lynx officials met with the agencies involved in the ACMP review, including DEC, to discuss their new exploration plans for the unit.
Harding said the meeting went well. “It was a good interactive meeting, a good information exchange from both sides. … We feel optimistic about DEC’s response to our plans.”
DGC’s Glenn Gray concurred. “So far, this review is shaping up to be a good one. I think AEC has really worked the issues up front, including use of the SDC rather than an ice island. Hopefully, there won’t be any glitches later in the review,” he told PNA Nov. 21.
AEC officials have also been visiting with people in the North Slope communities of Kaktovik, Nuiqsuit and Barrow about their project.
“Our primary objective is to understand their concerns, especially about whaling, and work with them. We have been providing them information about our exploration plan and details about the SDC. … We have requested a lot of feedback so we understand their issues and can work to accommodate their needs,” Harding said.
Local hire was also an important issue to the North Slope residents and one, he said, AEC was taking seriously.
Plays on both sides of the border With an “enterprise value of approximately C$14 billion,” Harding said Alberta Energy is one of North America’s largest independent oil and gas companies. Trading on both the Toronto and New York stock exchanges, it ranks first in natural gas production in Canada, and fifth among independent producers in North America.
According to Alberta Energy’s President and CEO Gwyn Morgan, the company’s goal is to become a “global super-independent oil and gas company” to rival Anadarko and Burlington.
Expansion-minded and market savvy, in the last 2 years Morgan has expanded Alberta Energy’s reach throughout North America, taking over McMurry Oil and Ballard Petroleum, two key operators in the U.S. Rockies; gaining a foothold in the North Slope with exploration acreage deals totaling more than 1.2 million acres; and signing a farm-in deal with Conoco to explore deepwater prospects in the Gulf of Mexico. It currently has exploration and production properties in Ecuador, Canada and the United States as well as exploration properties in Argentina, Australia and the Caspian Sea.
Alberta Energy’s Canada properties include two exploration licenses in the Mackenzie Delta involving 535,000 gross acres.
When asked if he considered Alaska “open for business,” Harding said, “That’s the assumption we are operating under. We’re excited; we want to stay here as long as there are opportunities for us. We were happy to take over operatorship at McCovey.
“We are a firm believer in the region for both oil and gas. We acquired a very large position in the Mackenzie Delta and saw an opportunity to look at gas on both sides of the border. We were also attracted by what we saw as world class oil opportunities,” he said.
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