The Explorers 2018: ASRC certifies Placer well but stays mum on results

The state and the Arctic Slope Regional Corp. subsidiary have been disputing the next steps for the soon-to-expire Placer unit

Eric Lidji

for Petroleum News

ASRC Exploration LLC completed its first operated exploration well in Alaska in early 2016, when it drilled Placer No. 3 at the Placer unit, west of the Kuparuk River unit.

And although the exploration arm of Arctic Slope Regional Corp. has hinted that the prospect is economically viable, the project is burdened by a dispute with the state. In July 2017, Division of Oil and Gas Director Chantal Walsh approved a new plan of development for the unit running through Sept. 8, 2018, but called unitized development “highly unlikely” given the lack of production or operations detailed in the new plan.

(A unit is not a prerequisite for oil and gas development in Alaska. AIX Energy LLC, for example, has been developing the Kenai Loop gas field for years on a lease basis.)

The current plan of development running through September 2018 calls for completing a reservoir map using new and existing seismic data; negotiating for access to regional infrastructure; and continuing engineering work for drilling pads, roads and pipelines.

Certification

In state filings after completing drilling operations, the company said that Placer No. 3 had “confirmed extension of the Placer reservoir beyond the central Placer No. 1 location.” The well had identified one productive interval, and the company suggested that there was the potential for identifying additional intervals with more drilling.

The state certified the Placer No. 3 well as being capable of producing in paying quantities in December 2016. Well certification is often used to protect an individual lease from expiration but can also be used to protect an entire unit from expiration, so long as the state approves a plan of development with certain work commitments.

The well and the subsequent certification were the culmination of nearly two decades of work. Eager to become an operator in its backyard, Arctic Slope Regional Corp. created a “mentoring” agreement for exploration with BP Exploration (Alaska) Inc. in the 1990s.

Placer was the first project under the agreement. ConocoPhillips Alaska Inc. drilled the Placer No. 1 and Placer No. 2 exploration wells in early 2004. Through a farm-in agreement, ASRC acquired a 35.7 percent working interest in the Placer No. 1 well.

Despite seemingly promising results from the two-well program, ConocoPhillips and the other partners did not pursue development. But ASRC remained interested. The company acquired the Placer prospect in a March 2006 lease sale, the Placer No. 1 well in June 2010 and a license over an earlier seismic survey of the region by early 2011. It also created ASRC Exploration to operate exploration and development work in the future.

Extension requested

But the state and the company disagreed about the size for the unit. ASRC Exploration wanted an 8,769-acre unit covering four leases. The state approved a 1,480-acre unit covering portions of four leases around Placer No. 1. The company complained, saying that any well drilled at the smaller unit would mimic the results of the existing well.

After years of debate, the state ultimately approved the larger unit boundaries in November 2014 but required the company to post a $2.5 million performance bond by mid-January 2015 and fulfill commitments culminating in a well by May 2016.

ASRC Exploration completed the 6,380-foot nearly vertical Placer No. 3 well in March 2016, according to Alaska Oil and Gas Conservation Commission well reports.

With the Placer unit set to expire in September 2016, the company asked for a five-year extension, running through September 2021. Department of Natural Resources Commissioner Andrew T. Mack instead approved a two-year extension, saying it would balance the needs of the company with the needs of the state to promote competition.

In its request for the extension, ASRC Exploration had proposed a two-year plan of development at the Placer unit. In the first year, the company would use data from all three Placer wells to determine the “extent, size and continuity of all producible reservoirs,” would initiate facility sharing agreements with Brooks Range Petroleum Corp. and ConocoPhillips Alaska Inc.; would obtain data from the CGG Tabasco 3-D seismic survey and merge it into existing data; and would estimate infrastructure costs.

In the second year, the company would determine future well locations and infrastructure placement and would propose participating areas based on its ongoing reservoir studies.

Pending expiration

ASRC Exploration completed an initial geologic and engineering study of the Placer No. 3 well. The company also initiated discussions with Brooks Range Petroleum Corp. and expected to enter negotiations with ConocoPhillips in the near future. The company hired ASRC Energy Services to provide cost estimates for development work. And the company received the Tabasco 3-D seismic and was moving toward the merging work.

Attached to the annual report, the company also provided a second plan of development for the Placer unit, detailing activities from September 2017 to September 2018. The program called for a series of projects aimed at “establishing the viability of the Kuparuk C as a commercial reservoir and determining the most efficient way to develop it.”

Division of Oil and Gas Director Chantal Walsh took issue with elements of the plan.

For starters, ASRC Exploration complained about media coverage of its activities and submitted two versions of its plan - a public version and a confidential version. The state rejected the request for confidentiality, except for those categories covered by statute.

The state and the company also disagreed about the circumstances of the transfer of Tabasco 3-D seismic data. According to ASRC Exploration, the state was slow in transferring the data, resulting in a six-month delay from the timeline in its first plan of development. Once the company obtained the data, it found a small portion missing.

But according to Walsh, ASRC Exploration should not have received the information in the way it did. The state gave the information to Arctic Slope Regional Corp. under the terms of settlement agreements from 1991 and 2017. The agreements allowed Arctic Slope Regional Corp. to share information with employees and contractors, but not with a separate corporation such as ASRC Exploration. “AEX may have obtained the Tabasco seismic data earlier this year, but it did not receive it from the State. And under the terms of the 1991 and 2017 agreements, it should not have received this data from ASRC.”

Walsh claimed the information was complete when the state transferred the data set to Arctic Slope Regional Corp. “The Division is unaware how or from whom AEX obtained this data and thus cannot comment on any issues with the data AEX obtained,” she wrote.

Walsh also challenged the facility sharing update, noting that owners of the Brooks Range Petroleum Corp.-operated Southern Miluveach unit and the ConocoPhillips-operated Kuparuk River unit were not authorized to process oil or gas from other units.

Considering the proposed plan of development, Walsh described the work as “activities, not operations” as described by existing regulations. Without a plan of development that includes approved operations, she noted, a certified well could not be used to extend the term of a unit. “The fact that AEX has proposed no production or operations to extend the unit past September 7, 2018 makes unitized development highly unlikely,” she wrote, referring indirectly to the ability to develop a lease without a unit. Without an amendment to the plan incorporating production or operations, the unit will expire this September.