Great Bear adopting new approach, seeking conventional oil targets

Over the past couple of years it has become evident that Great Bear Petroleum Operating, the company that entered the Alaska oil scene in 2010 seeking shale oil plays on the North Slope, has changed its exploration strategy to a more conventional approach. And, during a Senate Resources Committee hearing on April 9, Pat Galvin, the company’s chief commercial officer and general counsel, described the evolution in his company’s exploration thinking.

Great Bear has assembled a net acreage of some 500,000 acres in state oil and gas leases to the south of the Prudhoe Bay and Kuparuk oil fields. Galvin said that the company has now acquired 500 square miles of 3-D seismic data in its acreage and is currently acquiring another 450 square miles of 3-D data. To date, the company has drilled three wells in its leases.

Shale play uneconomic

“What we discovered through the course of that is that the cost structure on the North Slope currently would prohibit the ability to develop a shale play,” Galvin said. “If you took the Lower 48 shale plays and dropped them on the North Slope of Alaska they would still not be economic, given the cost environment we experienced between 2010 and 2014.”

In fact, there is a “Catch 22” situation, in which the needed cost structure cannot arise until there is a level of drilling appropriate to a shale oil development, while, on the other hand, that development cannot occur without the appropriate cost structure. Great Bear has elected to address this conundrum by first going after more conventional oil prospects in its acreage, to lay the starting infrastructure for a potential future shale oil program, Galvin said.

“So, we still believe that a shale play is a potential in the long term on the North Slope, but it will have to be built upon the foundation of a series of conventional plays,” he said.

And, with that in mind, Great Bear has expanded its management team to include people with oil industry operations experience, Galvin said. For example, the company’s new president and CEO, Mike Mason, has enjoyed a long career in the oil industry as a petroleum engineer, while Chief Operating Officer Mark Clement is a leader in the use of hydraulic fracturing techniques and has worldwide drilling experience. The company has also added significant technical expertise to its geoscience and operations teams, Galvin said.

Confidence in success

Galvin also commented that, although his company is now seeking conventional targets, the dividing line between what is thought of as a conventional play and what is thought of as unconventional has been becoming increasingly blurred. New technologies developed for shale oil situations have become useful in developing more conventional oil resources.

“So we see the opportunity to bring unconventional technology, horizontal drilling, hydraulic fracturing, and developing a range of fields that would be considered somewhere between conventional and unconventional,” Galvin said.

Exploration strategy

Because of operational difficulties, the company was only able to drill one well, the Alkaid No. 1 well, during the winter of 2015, in pursuit of its new exploration strategy. That well was located 3.5 miles west of the Dalton Highway. The plan, going forward, is to complete the seismic acquisition program this year, develop a priority list of prospects and execute a multi-year, multi-well exploration program, investigating conventional prospects, Galvin said.

And, since starting its business, Great Bear has partnered with two other companies in its North Slope venture. Early in its program, the company came to an agreement with services company Halliburton, whereby Halliburton paid the cost of Great Bear’s first two wells in exchange for a 25 percent interest in a swathe of leases in the more northern part of Great Bear’s acreage, Galvin said. And in 2015 a company called Borealis acquired an 8 to 10 percent interest in most of Great Bear’s leases, to limit Great Bear’s net lease position to a maximum of 500,000 acres. After the Borealis deal was executed, Borealis was bought out by Otto Energy, a publicly traded Australian company.

Galvin said that Great Bear currently operates about 590,000 acres in leases.

- ALAN BAILEY

Great Bear says tax credits underpin financing

Galvin expressed his company’s worries over current uncertainty relating to the future of the state’s tax credit system. Certainty over the future payment of tax credits is the only means of obtaining loans, as distinct from equity investments, in the risky business of oil exploration, he said. And money from tax credits is plowed back into further exploration, he added. Uncertainty or delays over tax credit payments will increase financing costs and ultimately scare away potential investors. The result would be a slowdown in exploration and less exploration activity, Galvin said.

—ALAN BAILEY