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THE EXPLORERS 2005: Will Kerr-McGee be the first independent? Oklahoma company to make decision on North Slope Nikaitchuq development by year-end 2005 Kay Cashman Petroleum News
Kerr-McGee could be the first independent to operate an oil field on Alaska’s North Slope. The decision to sanction its Nikaitchuq project will likely be made by the Oklahoma independent before the end of 2005 — after this magazine goes to press in late October 2005.
If it stays on track, Kerr-McGee could be producing oil from the Nikaitchuq unit as early as April 2006. That’s just a little more than two years since the company first entered Alaska and acquired a 70 percent interest in Nikaitchuq from former partner Armstrong Alaska — and almost exactly two years since it completed its first Nikaitchuq exploration well.
At full production Nikaitchuq is expected to produce 60,000 barrels of oil per day, including some minor quantities of natural gas, and to produce through 2026.
One possible impediment to development of Nikaitchuq would be the inability of Kerr-McGee to secure royalty relief from the State of Alaska. Another could be peripheral agreements with ConocoPhillips, the operator of the nearby Kuparuk unit. Problems with either, Petroleum News sources say, could derail development of Nikaitchuq, which means “to persevere” in Inupiat, the Native language of northern Alaska. Phased development at Nikaitchuq If Kerr-McGee sanctions development of Nikaitchuq, it and its new partner Eni Petroleum could set a record for the shortest time from exploration to production of a standalone oil field in northern Alaska.
“We’re bringing a new, independent mindset to the North Slope,” Tim Martin, Kerr-McGee vice president of international exploration, told company employees in an internal publication released in mid-2005.
“Although the majors have done a fantastic job opening up an incredibly remote basin and bringing it on production, the North Slope has reached a point when it is time for aggressive independents like Kerr-McGee to bring a different approach to both exploration and development,” he said.
“While putting the environment and safety as highest priorities, Kerr-McGee can drive down costs with the same creativity that brought production spars to the Gulf of Mexico. Kerr-McGee’s project management expertise will add value through both cost reduction and cycle time compression. Once on line, our production operations will be aggressively optimized to even further maximize value of the asset,” he said.
Cycle time compression is critical on the North Slope where exploratory drilling activities are limited to a few winter months each year, Kerr-McGee said in the publication.
The big independent’s philosophy of doing business was a good fit with its former North Slope partner Armstrong Alaska, which sported the slogan “smoother, faster, better, cheaper.”
Both companies take pride in thinking out of the box and moving quickly, which is evident from the way their proposed plan for Nikaitchuq development was put together — in phases.
Part of Kerr-McGee’s secret to fast-tracking Nikaitchuq has been its efficient permitting procedures, which utilize the KISS principle, and part will be that they plan to develop the unit in phases with initial production coming from onshore at Oliktok Point.
As many as 170 wells In addition to the pad at Oliktok Point, Kerr-McGee plans to construct as many as three offshore pads (man-made islands). As many as 170 oil wells could be drilled — 20 wells at Oliktok Point and about 50 wells on each offshore pad.
If it gets a green light, work will likely begin at Nikaitchuq in late 2005 or the first part of 2006 on the Oliktok production pad (including as many as four wells) and gathering lines to the Kuparuk Pipe Line.
Work could also begin on the offshore west and central production pads in the same winter, but Kerr-McGee told regulators that those pads would probably not be built until the following winter, 2006-07.
Kerr-McGee said the production islands would be built in shallow water south of the barrier islands to “eliminate potential habitat conflicts with local residents and biota.”
The west pad would be about 4.5 miles northwest of Oliktok Point. The central pad, just south of Spy Island, would be 3.7 miles east and a little north of the west pad.
No schedule has been set for the offshore east production pad, which would be 4.7 miles east and a little north of the central pad and just south of Leavitt Island.
Although the detailed facility layout has not yet been finalized, the Oliktok Point production facility is expected to be contained within a gravel pad measuring approximately 300 feet by 300 feet that will be adjacent to the drilling operations.
Pipe-in-pipe design for Nikaitchuq Three-phase flow (oil, natural gas and water) would go from the offshore pads to a production facility at Oliktok Point in what Kerr-McGee calls a “pipe-in-pipe” pipeline, a design intended to reduce the chance of spills and cut costs.
The design calls for a conductor pipe (and any attached lines and cables) to be placed in a trench below the seafloor, providing both protection and leak detection around the lines containing oil, gas and water.
The gathering line from Oliktok Point to Kuparuk could be buried as a pipe-in-pipe system in the road, placed on existing pipe racks, or put on a new rack next to the existing one.
There will be drilling at offshore and onshore locations for at least two to three years after each pad is completed. But once drilling is finished, the offshore production pads will be unmanned, Kerr-McGee said.
Kerr-McGee said the Nikaitchuq unit will produce from two formations — the Schrader Bluff and the Sag. The Schrader wells will be drilled to a depth of 3,500 to 4,000 feet; the Sag wells to a depth of 5,000 to 7,000 feet.
Production in a tank Wellheads at Nikaitchuq would be contained in a tank system with remote leak detection and recovery systems. The system will be equipped with pumps so that any “leaking fluids can be automatically recovered” and sent to the fluid transport line, Kerr-McGee said.
In addition to drilling at Nikaitchuq, which sits in the shallow waters of the Beaufort Sea, Kerr-McGee drilled three other exploratory prospects in the first half of 2005 — Kigun, Ataaruq and Tuvaaq. Adjacent to Nikaitchuq, Kigun and Tuvaaq were declared discoveries by the company and as of this printing are being evaluated for commerciality.
“We are encouraged with the results we’ve seen thus far in Alaska,” Dave Hager, Kerr-McGee’s senior vice president responsible for oil and gas exploration and production, said following testing at Tuvaaq. “Although we still need to complete the appraisal program, based on initial evaluation it appears the Schrader Bluff interval might be developed throughout much of our 36,000 acres in the Nikaitchuq and Tuvaaq area.”
Although the acreage surrounding the Kigun well adjoins the Nikaitchuq unit, Kigun is actually part of the ConocoPhillips-operated Kuparuk River unit.
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