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Winstar blazes trail for independent producers on North Slope
Company hopes to drill first well in November; Jim Weeks credits Knowles charter agreement with BP and ARCO for opening the North Slope to competition Kay Cashman PNA Publisher
Former ARCO Alaska Inc. executive Jim Weeks is the point man behind Winstar Petroleum LLC’s efforts to be the first independent petroleum company producing oil on Alaska’s North Slope.
Weeks, Winstar president and CEO, told Alaska Support Industry Alliance members March 16 that his firm plans to drill a well in November on its lease north of the Kuparuk River unit.
The Petersburg-based independent has 12,000 acres on the North Slope, including leases near Liberty and Badami, but it is focusing its attention on a 1,280-acre offshore lease one-half mile northeast of Oliktok Point. Lease ADL 388584, which used to be part of BP Exploration Alaska Inc.’s Milne Point unit, abuts the northern boundary of Kuparuk.
Weeks said Winstar plans to drill a 7,500 foot step-out from an existing onshore pad, 3-R.
The company has purchased 3-D seismic for the southern 20 percent of the lease, where the drill site is located. Weeks is negotiating with Western Geco to purchase 3-D seismic shot for BP in the northern part of the lease. “We’ll take a look at it before we drill,” Weeks told PNA in an interview. Drilling not a certainty Knowles made it possible Weeks said the best scenario is for Phillips Alaska Inc., operator of the Kuparuk unit, to drill the well, but “they have other priorities and prefer not to get into the business of contract drilling,” which he said is understandable.
Because Winstar is 90 percent certain it will find commercial quantities of oil, Weeks has initiated negotiations with Phillips for access to Kuparuk processing facilities. He said Phillips “is amenable to facility access.”
Winstar will file for its drilling permits soon but drilling is not a certainty, Weeks said: “We want to get other agreements in place so that we can get the oil to market as soon as possible.” Knowles made it possible Weeks referred to the facilities disagreements that plagued the North Slope Tabasco discovery. That field, he said, took “about 13 years from discovery to production” something Weeks said an independent oil company can’t afford.
But lengthy delays are a thing of the past, he said, crediting Gov. Tony Knowles for the change: “I would not be here today if not for the charter that Gov. Knowles negotiated when BP bought ARCO. The provisions in that charter make an independent oil industry on the North Slope possible. … Without these provisions it would take 10 years or more to gain access.”
The Charter for Development of the Alaska North Slope was signed Dec. 2, 1999 by ARCO Alaska Inc., BP and the state. Weeks said provisions within the charter make seismic and well data available for purchase; make facility access subject to “reasonable commercial terms;” require companies to submit to binding arbitration to determine “reasonable commercial terms;” and provide a formula for the purchase of crude oil.
He commended Knowles and his staff. “They were thinking longer term. … as the North Slope fields mature …we æ independents æ will be here after the majors are gone.” One size does not fit all But Winstar faces regulatory challenges that could dash its hopes to be an operator on the North Slope.
“Alaska is open to business but the North Slope is only open to big business. That’s not what was intended; it’s just the way it has evolved because of the high costs of doing business on the North Slope,” Weeks said.
Winstar is up against Alaska’s oil spill laws, which Weeks said are the most “stringent” in the world. It is faced with even more stringent coastal regulations for oil spills in sea ice because the onshore pad from which it hopes to drill a step-out well is 250 feet from Simpson Lagoon, part of the Beaufort Sea.
The problem, Weeks said, is that current oil spill law was “written in the emotional aftermath of the Exxon Valdez spill.” Weeks suggested that one of the emotions prevalent in the authorship was “punishment.”
“The well we want to drill on our lease is an average Kuparuk well, there’s no unusual pressure or problems with it,” Weeks said. But because of the well’s proximity to Simpson Lagoon, ADEC has restricted drilling to the winter season. … That cuts our flexibility but it’s not a show-stopper. But we must have a spill contingency plan to produce oil.”
And as part of that plan Winstar was required to name Alaska Clean Seas as its clean-up partner. Membership in the co-op costs $500,000, Weeks said. Plus, by Alaska law, members must have $100 million worth of insurance and a $200 million net worth.”
“It’s a one size fits all standard,” he said, an impediment to smaller companies such as his own, which is 74 percent owned by Alaskans.
One solution is for Winstar to be allowed to use Alaska Clean Seas’ equipment as a non-member, but the clean-up co-op told Weeks that its articles of incorporation prohibit it from doing that.
“Alaska Clean Seas loaned equipment to the Coast Guard, but the Coast Guard might have more influence than we do,” Weeks said.
Weeks asks Alliance for help “AEDC’s web site says that Alaska’s oil spill laws are the most demanding in world,” Weeks said. “And I think that’s true.”
Weeks wants rational oil spill laws. Alaska Department of Community and Economic Development Commissioner Deborah Sedwick “has pledged her assistance in the effort,” he said.
“What can you do?” Weeks asked the audience. “I’d like to see the Alliance lead an effort to benchmark Alaska’s environmental costs and standards and compare them with other places.”
“Knowles regularly asks how Winstar is doing and his staff says, ‘not well.’ Maybe they should say, ‘no well æ yet,’” Weeks said.
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