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THE INDEPENDENTS 2003: Anadarko still on track in Alaska North Slope acreage up since last year; analysis of Arctic platform’s performance next Kay Cashman Petroleum News
Anadarko Petroleum came to Alaska in the early 1990s because Bob Allison, its CEO and president, believed the North Slope held opportunity for major new finds. The Houston-based independent’s mission was to become a major oil and gas producer and operator in Alaska.
Today Anadarko has access to approximately 4.6 million acres — more Alaska acreage north of the Brooks Range than any other company.
It has operated one North Slope exploration well, the Altamura 1, in the National Petroleum Reserve-Alaska in the winter of 2001-2002 and participated in numerous other wells with partners. Although Anadarko’s partnership agreement with ConocoPhillips in NPR-A likely precludes any chance of its operating in NPR-A again, the company is moving closer to its own operations in the Brooks Range Foothills and in the central North Slope between the foothills and the major producing fields along the coast.
“Years ago, more than a decade ago, (Anadarko) concluded that Alaska was a place that still held the potential for giant fields to be found,” said Bill Sullivan, Anadarko vice president. Other companies were exiting or avoiding the state, but Anadarko wanted in.
“We were a little bit contrarian in the timing, and we made a serious and long term effort,” Sullivan said in 2002. “We are comfortable doing that. When we believe in our technical homework, we will commit.”
To reduce risk, Anadarko made its first forays into exploration with experienced partners as operators, beginning in 1993 with Exxon at the Thetis Island prospect in the Beaufort Sea, five miles offshore.
The Anadarko stamp, ARCO good partner But Anadarko didn’t rush into Alaska to ape the status quo: it wanted to put its own stamp on the art of drilling in the Arctic. And the company didn’t want to be a passive working interest owner: it wanted its ideas to be used.
“You don’t just pop into a place like Alaska and buy acreage and then go be an operator,” said Mark Hanley, Anadarko’s Alaska public affairs manager. “The goal was to partner with somebody — number one — who we could learn from, but also that we could give ideas to and they would listen.”
Anadarko partnered with ARCO Alaska (now ConocoPhillips Alaska) and Union Texas Petroleum (later merged into ARCO).
In 1994 the ARCO-operated partnership made a discovery that would give Anadarko its first production from Alaska: the 365 million barrel Alpine field on the western North Slope, now the largest field in the Colville unit, owned by ConocoPhillips (78 percent) and Anadarko (22 percent).
Alpine was declared commercial in 1996 and is now producing 100,000 barrels of oil per day.
“ARCO was a good partner; they were an aggressive explorer in Alaska, which was what we were looking for,” Hanley said. “They were willing to look at some of our ideas and they had the same approach we did.” Striking out on its own Because Anadarko’s long-term plan was to operate its own wells on the North Slope, it had embarked on an acquisition program of its own in 1998.
In June 1998 it acquired 107,591 acres in a state oil and gas lease sale, as well as six tracts in partnership with Fina (later signed over to Anadarko).
In August 1998, Anadarko and Arctic Slope Regional Corp. signed an exclusive exploration agreement granting Anadarko exploration rights for up to 3.3 million acres in the Foothills region of the North Slope. Anadarko brought EnCana and BP in as one-third partners but retained operatorship.
Over the next three years Anadarko continued to shoot seismic across the North Slope, with special emphasis on the gas-prone Brooks Range Foothills. It also continued to acquire acreage and worked at defining prospects, including oil prospects in the central North Slope south of existing infrastructure.
At the end of 2002 Hanley said the company was “at the coming together phase. We’ve got the exploration data, we’ve looked over the information, we’ve got a huge acreage position, we’ve got multiple plays that we’re working — developing prospects — looking at the seismic data that’s already been processed.”
Anadarko, he said, was in the process of prioritizing its top prospects for oil and gas.
But the viability of gas prospects, he said, would depend on access to markets.
“Gas depends on what we think is the likelihood of a gas line,” he said, “We can’t spend a ton of money with no way to get to market.”
Winter of 2002-2003, testing innovations Anadarko didn’t spud a new exploration well during the winter of 2002-2003, but it did begin testing a drilling innovation that was expected to lead to more drilling on the slope. The company decided to tackle the North Slope’s most challenging barrier to drilling, which is to find large enough oil and gas accumulations to justify the exploration and development costs.
Actually, Anadarko approached the problem in the reverse: it looked to reduce finding and development costs to make smaller prospects pay because even a 100 million barrel field 70 miles from infrastructure could prove uneconomic if oil prices dropped to the $15 range, a state official said.
One of the highest costs in Alaska is the amount of time you have capital and staff tied up in prospects. Some factors, such as a comparatively lengthy and complicated permitting process, can’t be directly controlled by companies.
But developing technology that will allow them to discover and ultimately produce an accumulation more rapidly is something private enterprise can impact. Hanley said if a company can make the same investment with payoff in half the time, investment in Alaska would be more competitive with other oil provinces.
“Frankly, as an exploration company, we like to either confirm or condemn as quickly as possible because then we’ll move on to the next prospect,” he said.
Terrain also an issue With prospects in the Brooks Range Foothills 80 miles south of existing roads, terrain and distance challenged Anadarko to find new ways to access its acreage.
Ice roads work fine on the flat coastal areas of the North Slope, but on steep grades in the Foothills, Hanley said, water won’t stay in place long enough to freeze.
Distance is a factor as well. As a general rule, it takes a day to build a mile of ice road, Hanley said. If road building consumes 70 days of the short winter drilling season, outer prospects become impossible using current techniques.
“Our folks challenged the technology guys: how are we going to reduce our costs, can we get a 50 percent reduction in our exploration well costs, and can we figure out a way that we can drill more wells?” he said.
Anadarko’s technicians designed a prototype for a revolutionary mobile drilling platform that can be hauled in by Rolligons before the tundra is open to regular traffic and eliminates the need for ice roads and pads. And what remains when the platform is removed are 20-inch diameter holes down to 15-20 feet, which are filled and planted.
The company tested the Arctic platform by drilling “Hot Ice,” a shallow gas hydrate test well, as part of a Department of Energy project versus drilling a conventional exploration well. Anadarko was not able to finish testing its Hot Ice well last winter so it is going back in December to complete the well and take down the Arctic platform. It will be evaluating the platform for future use on the North Slope, Hanley said.
Expanding the scope at Alpine In late 2002, Kevin Meyers, ConocoPhillips Alaska president, told analysts that the western North Slope was an area of growth for the company. It, and partner Anadarko, were looking at possibly developing five Alpine satellites and expanding the Alpine facilities to handle the additional production. One or two of the five drill sites the company had identified were in NPR-A, where all ConocoPhillips acreage is partly owned by Anadarko to the tune of 22 to 40 percent.
Prior to this time, the partners had mentioned just two Alpine satellites – Nanuq and Fiord. In NPR-A the discoveries were 15 to 25 miles southwest of Alpine and include Spark, Moose’s Tooth, Lookout and Rendezvous.
First oil from NPR-A in 2008 In February, ConocoPhillips signed an agreement with the U.S. Bureau of Land Management calling for an environmental impact statement for Alpine satellite pads that included two NPR-A discoveries, Lookout and Spark.
In May, Henri Bisson, the Alaska director of BLM, said that his agency expected oil would begin flowing from Alpine satellites in NPR-A by 2008.
In an SEC filing early in the year, Anadarko reported the results of its Altamura No. 1 NPR-A well, saying that it had encountered pay with low permeability.
A state official said that low permeability is a problem with many North Slope reservoirs, including the nearby prolific Alpine reservoir.
There are two common ways to address permeability on the slope — drill vertical wells and fracture them or drill long, horizontal wells like ConocoPhillips has done at Alpine, exposing a lot of the reservoir to well bore.
The state official said that some of the Alpine horizontal wells are 3,000 feet long: “Either way, you can substantially increase your flow rate,” he said.
Altamura No. 1 was temporarily abandoned. The company renewed its Altamura No. 2 drilling permit.
Larger than Prudhoe Bay and Kuparuk combined On March 20, Diane Kerr, Anadarko’s frontier exploration manager for Alaska and Canada, said that the company had boosted its goal for crude reserves passing through the Alpine production facilities from 430 million barrels to 1 billion barrels.
Kerr also said the company now believes the hydrocarbon potential of NPR-A and the Brooks Range Foothills regions of the North Slope is as great as the Prudhoe Bay and Kuparuk fields combined.
The Jurassic and Brookian formations, based largely on U.S. Geological Survey resource estimates, could hold 17 billion barrels of crude resource and the southern portion of NPR-A and foothills areas 60 trillion cubic feet of natural gas, Kerr said.
That compares to original recoverable oil reserves of 13 billion barrels at Prudhoe Bay plus a current 25 trillion cubic feet of stranded gas reserves, and an original 3 billion barrels of recoverable oil at Kuparuk.
“We did some of our own number crunching and we are very comfortable with the USGS numbers. … The North Slope is an empty pallet,” Kerr said, noting that only about 360 exploration wells have ever been drilled in Alaska’s vast Arctic region.
The Jurassic, which extends west from the Colville Delta into NPR-A, holds an estimated 7 billion barrels of oil, Anadarko said. Now that the company “has identified a strong fairway” along the Jurassic, the company’s strategy is “to move out west,” Kerr said.
The Brookian, which stretches across the central North Slope east to the Arctic National Wildlife Refuge, contains an estimated 10 billion barrels of additional crude reserves, the company said.
“We are looking at the oil potential in the near term and gas potential in the long term,” Kerr said.
“We’re banging away … taking old fashion geology and bringing in new ideas from the Gulf of Mexico and other places,” Anadarko’s Kerr said of the foothills.
Meanwhile, Kerr said 160 million barrels of the 570 million barrels of additional oil reserves for Alpine facilities would come from three proven satellite fields — Fiord, Nanuq and Lookout — and the rest hopefully from accumulations yet to be discovered.
“It is my personal goal to get to 1 billion barrels,” she said. “We’re taking Alpine as a hub and developing 40 to 60 million barrel (accumulations). We continue to fold in more satellite discoveries as we drill.”
The additional barrels would keep the Alpine facilities producing around 100,000 barrels a day for the next 10 years, Kerr said.
She said the Alpine field will have produced its first 100 million barrels by year-end. It came on-line in November 2000. Gas exploration program approved Another interesting piece of news about Anadarko this past year was the Alaska Division of Oil and Gas’s approval in late spring of the company’s gas exploration plan for the foothills.
The five well program, which could take place anytime through 2008, was originally filed in July 2002 and then revised at the end of last year.
The drilling locations are some 60-70 miles south of Deadhorse and 10-20 miles west of the Dalton Highway.
Anadarko wins BP exploration bundle Among Anadarko’s lease acquisitions this past year were two bundles of exploration acreage that BP had up for sale.
BP sold its net 116,500 acres in NPR-A to ConocoPhillips. Under the partnership agreement with Anadarko, an undisclosed 22 to 40 percent interest in the acreage was picked up by Anadarko.
Effective Dec. 31, 2002, BP also sold its one-third interest in the ASRC acreage to Anadarko, bringing Anadarko’s share to two-thirds.
In July BP announced that Anadarko had picked up another bundle of BP exploration leases, this time in the “Southeast Prudhoe area.”
Anadarko dropped its Kavik and Kemik leases on the eastern North Slope.
No wells this winter Anadarko allocated $63 million for 2003 from its $2.3 billion capital and exploration budget for Alaska. A portion went to pay its share of both the ConocoPhillips operated Alpine satellite well at Oberon and for the Puviaq well in NPR-A, as well as 16 development wells at Alpine.
In addition to its on-going seismic shoots in the foothills, Anadarko shot 400 square miles of seismic north and south of Alpine this past year.
Anadarko has no plans to operate any conventional North Slope exploration wells in the 2003-2004 winter drilling season, but in a September interview Hanley said he had not seen any change of direction for Alaska by Anadarko.
Anadarko has several permits in place for oil exploration wells that it could drill in the winter of 2003-2004, but Anadarko won’t be drilling gas wells.
“(Not) until we see how access plays out, and feel comfortable that we can get access to the gas line … We have done the seismic; we’ve done all the work we can do. We are not going to take the next step and drill,” Hanley said in September.
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