Providing coverage of Alaska and northern Canada's oil and gas industry
May 2019

Vol. 24, No.19 Week of May 12, 2019

Explorers magazine preview: Conoco boosts capital spend in Alaska

Drills seven exploration wells in 2018-19, two from year-round pads, five from ice pads; company upbeat about 2020 and beyond

Kay Cashman

Petroleum News

ConocoPhillips said it planned to drill six to eight exploration and appraisal wells on Alaska’s North Slope toward the end of 2018 and in the first few months of 2019. Having recently discovered approximately 1 billion barrels of light, sweet oil west of the central Slope and into the National Petroleum Reserve-Alaska, the company said 75% of its prospective exploration acreage had yet to be drilled. Plans were to drill it in 2018-19 and from 2020 onward, along with the development of several discoveries.

A new ultra-extended reach drilling rig, built by Doyon Drilling for ConocoPhillips, will be delivered in 2020, initially to assist with development of the Colville River unit’s Fiord West prospect on the environmentally sensitive Beaufort Sea coast, the oil major said in September 2018. The high-tech rig will allow access to 154 square miles of subsurface from a 14-acre drilling pad.

“In 2020 we’re bringing in the largest mobile extended reach drilling rig in North America and maybe the biggest in the world,” ConocoPhillips COO Matt Fox said in a mid-March 2019 interview with Bloomberg anchor Alix Steel on Commodity in Chief, a program dedicated to the biggest names and news in the commodity world.

With its new drill rig ConocoPhillips will be able to “drill wells six to eight miles away from pads, minimizing the environmental imprint,” Fox said.

At Willow, the largest new discovery to the west, ConocoPhillips hopes to build a new standalone production facility which will be able to handle as much as 100,000 barrels of oil per day, the company has said, but Fox said they are “unsure,” and still trying to determine just how much oil can be produced from the area, mentioning volumes of 100,000 and 140,000 bpd during the interview.

Fox was quick to point out that the 1 billion barrels of newly discovered “light, sweet” crude was “100% oil” and not oil equivalent, noting the wells all had a “high oily content,” and contained very little natural gas. The gas that was found in the wells, he said, was reinjected. (In 2018 ConocoPhillips said crude oil from Willow area wells had an API viscosity in the range of 41-44 degrees.)

When asked whether ConocoPhillips was bringing the hydraulic fracturing and well technology it employed in tight oil plays in the Permian basin, Eagle Ford and Bakken to Alaska, Fox said not really, pointing out they were dealing with “conventional reservoirs” on the North Slope that did not require the “massive hydraulic fracturing we use in the Lower 48.”

The North Slope wells were horizontals, he said, but their “native permeability” was high enough to flow without “massive stimulation.” The wells, he noted, would be fracked, but not to the extent of horizontals in unconventional reservoirs in the Lower 48.

In Steel’s introduction of Fox, she said the new developments ConocoPhillips was pursuing on the North Slope had a return rate of 20% at a cost that ranged from the high $30s-to-low-$40s per barrel.

Alaska gets larger cut of capex

Near the end of 2018, ConocoPhillips said it would increase its capital expenditure in Alaska to around $1.2 billion for 2019. This figure, amounting to about 20% of the company’s planned worldwide expenditure, compared with a capex level of approximately $900 million in 2018 in Alaska, excluding acquisition costs.

ConocoPhillips expected its 2019 worldwide capex to be about $6.1 billion, close to the same level as in 2018. So, the announced boost to Alaska investment represented an increased share of the company’s global expenditure, a factor that company officials have said reflected ConocoPhillips’ confidence in its Alaska ventures.

The increase in expenditure came from costs related to the advancement of Greater Mooses Tooth 2, or GMT-2; higher activity levels and higher working interests in existing fields; and further exploration activity on the North Slope, the company said.

The reference to higher working interests in Alaska referred to the acquisition of Anadarko Petroleum’s interests in lease holdings, mainly west of the central North Slope into NPR-A, and the acquisition of BP’s interests in the Kuparuk River field and Kuparuk pipeline system.

ConocoPhillips’ enlarged working interests in these assets will increase the company’s share of capital expenditure.

Big spend for Willow

Company officials have indicated initial development of Willow would likely cost $2 billion to $3 billion, with an additional $2 billion to $3 billion required for full field development, which will include not only the processing facility but gravel roads, pipelines, up to five drill pads and associated infrastructure.

The behemoth at the western end of the current chain of ConocoPhillips’ NPR-A developments, Willow is in the Bear Tooth unit and alone expected to peak at a rate of 100,000 bpd, with first production anticipated around 2024-25, if the project goes ahead as anticipated.

Initially, the company was looking to send Willow oil to be processed at its Alpine facilities in the Colville River unit to the east, then through the Kuparuk pipeline system and on to the trans-Alaska oil pipeline for the 800-mile journey south to its terminus in the Port of Valdez. But after reassessment of seismic and drilling results, in mid-2018 ConocoPhillips increased the prospect’s resource estimate from 300 million barrels of recoverable oil to between 400 million and 750 million barrels.

Multiple wells

The drilling results incorporated into the company’s plans for Willow’s development and standalone processing facility in 2018 were partly based the three-rig exploration and appraisal drilling in the winter season of 2017-18, the largest program conducted by ConocoPhillips on the North Slope since 2002.

Using the Doyon 141 rig, the company said four “exploration and appraisal” wells were drilled in and near Willow: Tinmiaq 7 (T7), T8, T9 and West Willow 1 (WW1), involving more than 37 miles of ice road and five ice pads.

Using the Kuukpik 5 rig, one slant and vertical well was drilled and tested at the Putu prospect, Putu 2 (PT2) and P2A, directly south of the Colville River unit. The program, on ASRC and state subsurface and Kuukpik surface acreage, involved one mile of ice road and an ice pad.

At the Stony Hill prospect, directly south of P2, Stony Hill 1 (SH1), a vertical exploration well was drilled with the Arctic Fox rig. Seventeen miles of ice road and one ice pad were laid. The well was tested.

Also, that season a 250 square mile 3-D seismic program was conducted, using a revolutionary new technology, ConocoPhillips’ compressed seismic imaging, which enabled seismic data to be gathered four times faster than previously possible and produced better seismic images, Scott Jepsen, ConocoPhillips Alaska vice president of external affairs and transportation, said in September 2018.

Putu, Cairn prospects

The Putu 2 and 2A wells successfully targeted two distinctive seismic amplitude anomalies, Jepsen said.

There was a third anomaly in the Putu prospect, he said, immediately west of the two tested anomalies - the company planned to drill into this third anomaly from the existing CD-4 pad in the Colville River unit before its 2018-19 ice road campaign began.

In a presentation about the company’s 2018 earnings strategy in early 2019, Ryan Lance, chairman and CEO, said ConocoPhillips was advancing construction in the GMT-2 project in NPR-A and conducting another season of “exploration and appraisal” drilling on the North Slope.

He said the company had already drilled two wells in December 2018 from existing gravel pads, testing the Cairn prospect from Drill site 2S, or DS-2S, in the southwest corner of the Kuparuk River unit, and testing the seismic anomaly in the Putu prospect in a well drilled from CD-4.

The Putu prospect was in what ConocoPhillips dubbed the Narwhal trend (informal, not geologic term), the same trend as the Pikka Horseshoe discoveries, in which Oil Search and its partners Repsol and Armstrong Energy are exploring and developing in the prolific Nanushuk formation.

Mysterious Cairn

ConocoPhillips has said very little over the years about the Cairn prospect. In the southwestern corner of the Kuparuk River unit, Cairn was part of the Tarn oil pool, which predecessor ARCO discovered with the Bermuda No. 1 well in 1991. That well had five intervals of late Cretaceous-aged marine sandstone in the Seabee formation - from deepest to shallowest, the intervals were Iceberg, Arete, Cairn, Bermuda and C30.

Perforated in the Bermuda, the discovery well flowed at 1,900 barrels of oil equivalent per day after fracturing and produced 37-degree API gravity oil.

The Cairn interval was also present in the nearby Meltwater oil pool, which ARCO discovered in 2000 with the Meltwater North No. 1 exploration well drilled into the middle Cretaceous Seabee formation Bermuda/Cairn sands, the stratigraphic equivalent of Tarn. Meltwater went online in 2000.

ConocoPhillips and its predecessor companies, Phillips and ARCO, have talked about the Cairn gas accumulation for enhanced oil recovery within the Kuparuk unit. Government filings by the company described the Cairn interval as thinner than the Bermuda oil interval produced at Meltwater, noting the sandstone reservoirs were discrete from but analogous to the Tarn reservoir some 10 miles to the north.

In 2001 the company penetrated oil in the Cairn interval at the Tarn No. 4 exploratory well, but said the permeability was too low for economic development. Seismic data (3-D) shot a couple of years later suggested “a prospective channel feature in the Cairn interval existed in the Meltwater development area (and) … may have improved reservoir quality” compared to the interval in the Tarn No. 4 well.

Most recently, in its application for the 2018 Kuparuk plan of development with Alaska’s Division of Oil and Gas, ConocoPhillips mentioned the 2N-310 Cairn test in 2008: “The Cairn interval was tested while drilling a Tarn reservoir development well (an injector). Both gas and oil was discovered in the Cairn interval, and additional appraisal will be required to determine the Cairn development potential in this area.”

But the company said, “no further exploration/delineation is planned in the Cairn or Bermuda sand intervals at this time.”

That has obviously changed for the Cairn.

Seven total exploratory wells

The other promised four to six exploration wells making up the 2018-19 season were drilled using Doyon rigs 141 and 142. As of April 7, 2019, Rig 141 was on the West Willow 2 well and Rig 142 was on the Tinmiaq 13, both exploratory wells.

As of the same date, the Alaska Oil and Gas Conservation Commission, which among other things issues and tracks drilling permits, showed ConocoPhillips having completed three other exploration wells west of the central North Slope, including: Tinmiaq 10, completed March 4, 2019 (total depth 7,635 feet and true vertical depth 3,762 feet); Tinmiaq 15, completed Feb. 21, 2019 (total depth 4,052 feet and true vertical depth 4,052); and Tinmiaq 16, completed March 7 (total depth 3,950 feet and true vertical depth 3,950).

So it appeared the company will complete five exploration wells from off-road ice pads, plus the two wells it had completed from gravel pads DS-2S and CD-4, for a total of seven wells - all classified as exploratory by AOGCC, although ConocoPhillips referred to them as a mixture of exploration and appraisal wells.

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