Explorers 2015: ConocoPhillips staying close to home for the time being

The company is appraising accumulations in existing units and saving NPR-A development for a later date

Eric Lidji

For Petroleum News

Since ConocoPhillips Alaska Inc. was created through a 2002 merger, the company has been looking for oil and natural gas in two general directions - outward and inward.

“Outward” characterizes the exploration activities designed to extend North Slope development to the west of the Prudhoe Bay unit. “Inward” characterizes a quieter inclination to increase development activities within producing oil and gas units.

ConocoPhillips has generally been the most active exploration company in Alaska over the past decade. This year, though, the company has been focused on existing units.

ConocoPhillips operates four North Slope units: the Kuparuk River unit and the Colville River unit on state land and the Greater Mooses Tooth unit and Bear Tooth unit on federal land. The company also holds considerable exploration acreage in the Chukchi Sea. And ConocoPhillips is a major working interest owner in the Prudhoe Bay unit.

The projects ConocoPhillips completed last year and funded for this year are relatively risk averse and generally development oriented. At the Kuparuk River unit, the company is increasing development drilling, building a new drilling pad and conducting some appraisal drilling at an undeveloped accumulation within the unit. At the Colville River unit, the company is finishing the long-delayed CD-5 drilling satellite of the Alpine field.

Those two units already have production.

ConocoPhillips was more cautious at its two units without production. The company postponed activities for the first development in the Greater Mooses Tooth unit for the year and proposed no work for the Bear Tooth unit. And the company has generally put any Chukchi Sea exploration on hold pending more regulatory and legal certainty.

ConocoPhillips is also one of the most important producers in the Cook Inlet basin - operating the legacy Beluga River and North Cook Inlet units and the associated Kenai liquefied natural gas export terminal. But it has been several years since the company drilled development wells at either unit and much longer since the company conducted traditional exploration activities - drilling or seismic - anywhere in the basin.

The Kuparuk River unit

Of those, the second is closest to what is traditionally considered “exploration.”

Sinclair Oil and Gas discovered the Kuparuk River oil pool in 1969. ARCO Alaska sanctioned development about a decade later, prompted by rising international oil prices.

Through mergers and acquisitions between 1999 and 2002, ConocoPhillips became the operator of the Kuparuk River unit. Today, ConocoPhillips owns a 55.3 percent interest in the main field, with BP Exploration (Alaska) Inc. owning 39.2 percent, Chevron U.S.A Inc. owning 4.9 percent and ExxonMobil Alaska Production Inc. owning 0.6 percent. The same four companies own the Kuparuk satellites, albeit in slightly different percentages.

Since Kuparuk production peaked at 339,386 barrels per day in December 1992, activities have included infill drilling, satellite development and enhanced oil recovery.

The current appraisal activities at Kuparuk emerged from recent seismic activity. The company commissioned the Western Kuparuk 3-D seismic survey in 2011, which led to an “infrastructure-led exploration strategy” focusing on drilling opportunities near existing infrastructure. That strategy is the opposite of the wildcat exploration ConocoPhillips conducted in the early 2000s in the far-flung corners of the NPR-A.

In early 2012, ConocoPhillips drilled Shark Tooth No. 1 to appraise an oil discovery in the southwest corner of the unit. ARCO had discovered the accumulation in the Kuparuk reservoir in the late 1980s with the KRU 21-10-08 well but never pursued development.

Toward the end of 2012, ConocoPhillips said the well had “discovered hydrocarbons in the Kuparuk sands, in accordance with expectations, and confirmed mapped volumes.”

Developing Shark Tooth from any of the three existing drill sites in the southwest corner of the unit - 2L, 2M and 2K - would have pushed the limits of existing drilling technology, according to ConocoPhillips. Therefore, the company proposed the first new drill site at the Kuparuk River unit in nearly 12 years, Drill Site 2S. The company began laying gravel early in 2014 and officially sanctioned the project in November 2014.

The $500 million project includes a pad, a new gravel road and associated power lines, pipelines and surface facilities. Pad construction occurred over the winter, with drilling expected to begin this summer and startup planned for the end of the year, according to a company timeline. The site is expected to produce some 8,000 barrels per day at its peak.

In late 2014, ConocoPhillips began permitting a similar appraisal project to the north, near the Palm satellite, (which had been the newest drill site, before the 2S project).

Phillips Alaska Inc. discovered the Palm satellite at the western edge of Kuparuk in 2001.

ConocoPhillips brought the satellite online in November 2003 from Drill Site 3S. The accumulation is in a Kuparuk C4 interval now known to be in communication with the main Kuparuk reservoir. Palm is generally managed as part of the main Kuparuk field.

Over the winter of 2012-13, ConocoPhillips conducted a pilot test on DS 3S-19, one of the original Palm development wells drilled in 2003. The test involved adding a perforation to the well and performing hydraulic fracturing operations to gauge the potential of developing the overlying Cretaceous Brookian Moraine interval.

“Any development would, of course, require adequate appraisal and study to prove commerciality,” the company told state officials in its 2013 plan of development, a sentiment the company reiterated in its 2014 plan of development this past June.

The current project involved drilling two wells to appraise the commerciality of the Moraine interval. The first was the DS3S-620 Moraine well drilled from an ice pad on ADL 025528 and connected back to Drill Site 3S using a 2.5-mile ice road. The second was the Moraine No. 1 well “to acquire core, logs and fluid samples,” which will be used “to delineate the Moraine reservoir” in the region, according to a December 2014 filing.

ConocoPhillips had intended to commission a 3-D seismic survey this year over some 103 square miles near Oliktok Point, at the northern end of the unit, but postponed the project, saying the area was too crowded with activity this winter to guarantee a quality shoot. The company said it would consider the project again in a future budget cycle.

The Colville River unit

ARCO Alaska discovered the Alpine oil pool in 1994 and brought the field online in November 2000. ConocoPhillips now operates and owns a 78 percent working interest in the unit. Anadarko Petroleum Corp. owns the remaining 22 percent interest. Similar to its strategy at the Kuparuk River unit, ConocoPhillips has been expanding development drilling at the main Alpine field while bringing a series of satellites into production.

ConocoPhillips initially developed Alpine from the CD-1 and CD-2 pads. In 2003, the company proposed five Alpine satellites - called Fiord, Nanuq, Lookout, Spark and Alpine West - and hinted at 10 potential satellites within 30 miles of the Alpine field.

ConocoPhillips brought the Fiord satellite (CD-3) and the Nanuq satellite (CD-4) online in 2006 and brought the Qannik satellite online from an expanded CD-2 pad in 2008.

Those three satellites brought the company to the edge of the Colville River.

A proposal to cross a channel of the river to develop the Alpine West satellite with the CD-5 pad first yielded local opposition and then, after ConocoPhillips had addressed local concerns, federal obstacles. The U.S. Army Corps of Engineers finally approved a bridge across the channel in late 2011 and now ConocoPhillips is completing site work and fabrication in advance of installation in early 2015 and first oil in late 2015.

ConocoPhillips proposed no exploration for the Colville River unit in its current plan of development and said it was “evaluating exploration opportunities to conduct in 2016.”

The NPR-A

In May 2001, Phillips Alaska Inc. announced the first NPR-A discoveries since the federal government re-opened the region to exploration in 1999. The company had drilled six wells and a sidetrack over the previous two seasons. Spark No. 1 and Spark No. 1A, Moose’s Tooth C, Lookout No. 1, Rendezvous A and Rendezvous No. 2 all encountered hydrocarbons. The sixth well, which had targeted a different interval, was a dry hole.

“These discoveries mark an important milestone in the Alaska oil industry,” Phillips Alaska President Kevin Meyers said. “Though the results are preliminary, we’re confident the discoveries will prove to be of commercial quantities. We believe that the five successful wells have encountered three separate hydrocarbon accumulations.”

The development of CD-5 should make it easier to pursue those NPR-A prospects, which are also on the other side of the Colville River from the Alpine processing facilities.

The GMT-1 project is a modified version of the former Lookout satellite, which would have been the CD-6 pad. The company changed the name and the scope of the project after the U.S. Bureau of Land Management formed the Greater Mooses Tooth unit in 2008. The revised application described an 11.8-acre gravel pad with the capacity for 33 wells, although the company has initially planned an eight-well development program.

The $890 million development was expected to come online by late 2017, producing some 30,000 bpd and employing at least 400 people plus support positions at its peak.

In late January 2015, ConocoPhillips deferred the project. “The project is challenged by permitting delays and requirements, as well as the current oil price development. In 2015, we will continue to shoot seismic over the GMT1 area and progress engineering,” ConocoPhillips Alaska President Trond-Erik Johansen said in a statement. As of mid-February, the company said seismic was nearly done and engineering work continued.

Also in February, the BLM issued a record of decision for the project and selected the development strategy proposed by ConocoPhillips and approved by the U.S. Army Corps of Engineers. The BLM had previously endorsed a different development alternative.

As it is currently doing at the Colville River unit, ConocoPhillips appears to be pursuing a step-out strategy at the Greater Mooses Tooth unit. The company drilled two exploration wells west of GMT-1 in early. The Rendezvous No. 3 well was on lease AA-81784, and the Flattop No. 1 well was on lease AA-87896. The former delineated one of the original May 2001 discoveries. The latter fulfilled a work commitment related to a 2009 expansion of the unit. The company has yet to release results from either well.

In 2009, the BLM formed the Bear Tooth unit over 23 leases covering some 105,655 acres in the area northwest of the Greater Mooses Tooth unit. The company staked seven well and sidetrack locations in the Bear Tooth unit in late 2012 and drilled the Cassin No. 1 well in early 2013. The well, which the company had referred to as a “wildcat,” made “a new oil discovery,” according to the company. Additional details have been scarce.

The Chukchi Sea

The distinction is faint praise, especially given the regulatory, legal and logistical matters that have delayed activities off the northwest coast of Alaska over the past seven years.

After acquiring some seismic and conducting some fieldwork, ConocoPhillips spent some $504 million in high bids on 98 tracts in a federal lease sale in the Chukchi in early 2008. ConocoPhillips later sold a 25 percent working interest in its Devil’s Paw prospect to Statoil of Norway and farmed out a 10 percent working interest of its leases in the Chukchi to OOGC, the U.S. subsidiary of the Chinese National Offshore Oil Corp.

A legal challenge to the lease sale delayed a drilling program proposed for 2011. The company later outlined a drilling program for 2014, although it later canceled those plans.

“While we are confident in our own expertise and ability to safely conduct offshore Arctic operations, we believe that more time is needed to ensure that all regulatory stakeholders are aligned,” Johansen said at the time. At an earnings call around the same time, Executive Vice President of Exploration and Production Matt Fox said ConocoPhillips had been “on the cusp of having to make some very significant commitments” for equipment, but felt unconfident about making those commitments without more regulatory certainty. “We felt that the prudent thing to do was to take a pause there and let things evolve a little bit before decide to drill those wells.”

A large discovery in the Chukchi Sea would extend infrastructure across the NPR-A, which would improve the economics of many marginal fields throughout the reserve.