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THE EXPLORERS 2006 - Pioneer moving forward with Oooguruk Takes break from North Slope exploration in 2006-07; focus on North Slope field development;
in Cook Inlet company commits to well at Cosmopolitan Kay Cashman Petroleum News
It’s nice to be an exception.
That’s what Alaska is to Pioneer Natural Resources Chairman and CEO Scott Sheffield, who says his company has cut back on its capital expenditures for exploration everywhere except Alaska and Mississippi.
In a speech on Oct. 5, 2006, he said the cutback reflects Pioneer’s “commitment to significantly decrease its spending on higher-risk exploration.”
“We’re cutting back exploration this year and going into the next four years,” Sheffield said, noting exploration spending is being cut from a historical range of 30 to 40 percent of total capital expenditures to 10 percent.
He also said total capex in 2007 will be 25 to 30 percent lower than the $1.4 billion in capex that Pioneer is spending in 2006. The 2006 capex is especially high because of funds available from divestitures in the Gulf of Mexico, he said.
Sheffield also commented that Pioneer currently has an especially large quantity of reserves in proportion to its production capacity.
“We’re left with a reserves-to-production ratio of 22 to 23, probably the longest in the industry,” he said.
Opportunities near Oooguruk Pioneer said in August that it does not plan to drill any exploration wells in Alaska in the winter of 2006-07. Instead, the company is focusing its Alaska resources on the development of its Oooguruk oil field in the shallow waters of the Beaufort Sea northwest of the Kuparuk River unit. Oooguruk will be the first North Slope field operated by an independent, although its oil will be processed by Conoco at Kuparuk.
Pioneer said in August 2006 that it had completed the construction of the gravel island drill site for Oooguruk. Additional work scheduled for 2006 included contouring and armoring the drill site, fabricating equipment and modifying the drilling rig for installation during 2007.
First production is expected in 2008. Oooguruk is expected to hold some 70 million barrels of recoverable oil and produce 15,000 to 20,000 barrels per day.
In his October speech Sheffield confirmed the company is forging ahead with its Oooguruk development. There’s “a lot of additional running room … in adjacent opportunities to continue to tie in,” he added.
Sheffield quoted economic data that seem to confirm an independent oil company can make a decent return from a medium-sized Beaufort Sea development. He said the projected internal rate of return for Oooguruk is 40 percent, with a discounted return on investment of 1.8. According to Pioneer’s data the company’s fields in the Lower 48 have internal rates of return in the range 35 to 45 percent.
Well at Cosmopolitan Pioneer is also looking at the possibility of developing the Cook Inlet basin Cosmopolitan oil field off the southwest coast of the Kenai Peninsula. The company increased its working interest to 50 percent and took over the operatorship of Cosmopolitan from ConocoPhillips in June 2006. A few months later Pioneer got approval from the State of Alaska’s Division of Oil and Gas for a new Cosmopolitan unit plan that requires it to begin drilling a new well, or a sidetrack well, from shore to the offshore prospect, by Nov. 14, 2007.
Pioneer’s Alaska subsidiary president, Ken Sheffield (no relation to Scott), said the company will evaluate the results from that new well and, if the results meet certain criteria, Pioneer will make a development decision.
“We’re pushing this project forward,” Sheffield said in a speech Sept. 21, 2006. “We’re envisioning that if all goes well we could see first production in approximately 2010.”
But, the 2010 startup date is contingent on further appraisal of the prospect, he said, noting that a development at Cosmopolitan would entail a large project.
“If all this were to come together … it would require some pretty significant infrastructure. … We’re about 65 miles from the existing Tesoro refinery on the Kenai Peninsula,” Sheffield said.
Cosmopolitan, which is approximately two miles offshore, near Anchor Point on the lower Kenai Peninsula, has resource potential of 30 million to 100 million barrels of oil.
Disappointing exploration results As optimistic as Pioneer is about its North Slope Oooguruk development, the results from the company’s winter 2005-06 North Slope exploration drilling demonstrate some of the inherent risks associated with exploring for oil and gas.
Pioneer was involved in drilling three wells using the new Doyon/Akita Arctic Fox drilling rig it helped design for use in Alaska.
But all that Pioneer has to show for its winter drilling efforts are some holes in the company’s balance sheet.
The first disappointment appeared when the company announced that the Hailstorm No. 1 well in the NE Storms unit, the initial well of the season, had proved to be a dry hole. ConocoPhillips and Pioneer each have a 50 percent working interest in the unit, which is south of Prudhoe Bay and southeast of the Kuparuk River unit.
But things looked up in March 2006 when Pioneer struck oil at its second well, the Cronus No. 1, southwest of Kuparuk. The primary target for the well was a Cretaceous-age Torok sand sequence, similar to the reservoir in the nearby Meltwater field.
“A thick, oil-bearing sand section in the Torok and a thin, oil-bearing sand in the Jurassic-aged Kuparuk C were penetrated by the well,” Pioneer said in May 2006. “Wireline and core data are currently being analyzed and integrated with 3-D seismic to determine if appraisal activities are warranted during the 2006-2007 winter drilling season.”
But the results of the analysis proved disappointing and the well was declared a dry hole on Aug. 15, 2006.
After Cronus, the Arctic Fox rig went on to drill the Antigua No. 1 well south of Kuparuk. ConocoPhillips was the operator, but Pioneer had a 32 percent working interest in the well.
Pioneer’s second-quarter 2006 results report described Antigua drilling as “unsuccessful.” According to Alaska Oil and Gas Conservation Commission data ConocoPhillips plugged and abandoned the well.
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