Providing coverage of Alaska and northern Canada's oil and gas industry
October 2020

Vol. 25, No.43 Week of October 25, 2020

Pikka on track for 2025

Oil Search continues evaluating last winter’s Mitquq and Stirrup discoveries

Kay Cashman

Petroleum News

Oil Search’s summer campaign on Alaska’s North Slope has ended with all work planned for the first phase of the three-phase Pikka development completed, providing year-round access to the project, the company said Oct. 20 in its third quarter report.

The summer program involved finishing the following:

* Nanushuk access road to first drilling pad (ND-B road).

* Nanushuk operations pad.

* Nanushuk process facility pad.

* Bridge installation across the Miluveach River.

In an Aug. 25 interview with Petroleum News, Oil Search Managing Director Keiran Wulff said the company is now focused on developing Pikka’s big Nanushuk reservoir (and smaller stacked accumulations) through the phased approach that will reduce upfront development costs and allow cash flow from Phase 1 oil production with a single drill site to fund the subsequent two phases.

The new approach will establish a strong foundation for the development of not only the Pikka unit, but also for prospective nearby acreage, the company said.

Capital spending down

Oil Search expects a reduction in even more costs than it estimated March 18 or this past August.

As of March 18, when the COVID-19 pandemic prompted a closure of exploration and development activities on the North Slope, Oil Search projected its 2020 capital spend in Alaska for exploration, evaluation and development would be between $260-300 million, down from earlier expectations of $340-380 million. As of Sept. 30, the company’s full year guidance had dropped to $225-250 million.

The reduction is largely due to the rephrasing of front-end engineering design activities for Pikka, plus a concerted effort to reduce costs by Oil Search and its vendors.

Oil Search continues to work to get development costs down. Having already reduced costs to match an oil price in the low $40s, the company is looking to get them below $40 per barrel before re-launching its partial divestment (15%) in a formal sell-down sometime in 2021.

No more layoffs in Alaska

Oil Search does not have any exploration wells planned for the upcoming 2020-21 North Slope winter drilling season due to uncertain market conditions. Although the company halted its plans for limited early production of Pikka in 2022, choosing instead to concentrate on three-phase development that would begin production in 2025, Alaska has fared comparatively well in terms of layoffs compared to other areas within the company’s portfolio.

The latest round of dismissals announced by Wulff on July 1 did not involve any Alaska workers.

However, some Oil Search workers were laid off in March and April.

“While seasonal contractors associated with our winter drilling and exploration programs represent the majority (of those March and April layoffs), we have reduced full-time (Alaska) employees by about 15%,” which brought the local total to 150 individuals, company spokeswoman Amy Burnett told Petroleum News July 1.

On Oct. 20, Burnett said Alaska employee numbers have remained at 150.

Mitquq, Stirrup evaluation

Meanwhile, on Sept. 30 Wulff noted that the Oil Search Alaska team, in cooperation with the company’s key stakeholders, has continued to make excellent progress on the value and capital optimization studies for Pikka’s new three-phase design.

“These changes will make the project resilient at lower oil prices and easier to finance, whilst ensuring the project can be expanded efficiently without compromising full value,” Wulff said.

Oil Search has not yet released the amount of oil each phase is expected to produce, likely due in part to the fact it is still evaluating the results of last winter’s exploration drilling.

Originally, Pikka was expected to produce 130,000-135,000 barrels of oil per day at its peak.

During third quarter, Oil Search continued to assess the results of its Mitquq and Stirrup discoveries. In combination with the latest seismic data, the results have provided an improved understanding of the geology and potential productivity of the Nanushuk play, the company said Sept. 30: “Further appraisal drilling of the Mitquq and Stirrup trends will be required to confirm the size and extent of these discoveries, with results to date continuing to support the potential development of Mitquq as a satellite to Pikka and Stirrup as a potential stand-alone development.”

A final investment decision on Pikka is “currently forecast for the end of 2021,” Oil Search said Sept. 30.

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