Santos is on track to deliver first oil in the second quarter of 2026 from its Pikka Phase 1 project on the western North Slope, but it doesn't plan to rest on its laurels as the targeted 80,000 barrels per day of production begins to flow.
The company is anxious to move on to Pikka Phase 2 in the Pikka unit, from there southwest to the Quokka unit, and from there southeast to the Horseshoe unit.
Company geologists are bullish on Quokka and Horseshoe, Joe Balash, Santos senior vice president external affairs said in an Oct. 12 presentation to the Alaska Support Industry Alliance in Anchorage.
"When we start to go into the development profile for those two, we have an entire generation of development ahead," he said.
"In Phase 1, once we get to our initial production, we think we're going to be ready to move right into Phase 2," Balash said, adding that a team is already assembled to direct revenue from the first phase to develop the second.
The addition of Phase 2 will double the Pikka production capacity to 160,000 bpd, leveraging existing infrastructure, he said, adding, "We see the ability in the next two drill sites that are already permitted, and basically building a mirror of our production facility though modular components."
"The Pikka unit alone has 400 million barrels associated with Phase 1 and the full unit itself is closer to 900 million barrels, and -- while those numbers are verified by third party reservoir engineers -- we think there's still additional upside on that," Balash said. "We won't be able to demonstrate that until we put more holes in the ground - we do think we have room to grow."
"We have a number of holes and penetrations - we're pretty confident in the numbers that are there, but Nanushuk hasn't been produced in this fashion on a long-term basis."
The Quokka project is the likely next move after Pikka Phase 2. The 81,110-acre Quokka unit was approved by the state in 2022, based on discoveries made in 2020.
"Quokka, with the data that we have to date, is roughly 450 million barrels and we think that that number ultimately will grow," Balash said.
Horseshoe has 150 million barrels in estimated contingent reserves, according to the presented materials.
Pikka by the numbers
The 80,000-bpd production rate at Pikka 1 is expected to be on plateau for 5-6 years, enroute to lifting its 397 million barrels of proven and probable reserves, Balash said.
The Santos share of the production based on its 51% interest is 165 million barrels, net of 18.67% royalties. Its partner, Repsol, is in for the balance.
"The CAPEX to get to first oil is about $2.6 billion -- folding in the additional drilling time it's going to push us over the $3 billion mark," he said.
The Santos CAPEX share based on its 51% interest is $1.3 billion.
The projected annual operating expense during production is $150 million.
"We've got a very significant effort underway," Balash said. "As of June, we crossed the $1 billion threshold; two weeks ago, our drilling team informed us that we'd crossed the $2 billion threshold."
The project has a forecast internal rate of return of 19% at a $60 per barrel long-term oil price. Its lifecycle breakeven oil price is $40 per barrel.
Balash credited Alaska's improved tax structure under Senate Bill 21 -- passed in 2013 -- for making the project more attractive.
"About 10 years ago many of you were a big part of the success in reforming production taxes; we talked about Alaska and its competitive place in world investment," he said. "The fact is, in the last 10 years things have changed, it's no longer enough to be competitive, we have to be compelling."
"The return that we released here and explained to the market, those are compelling returns; that's what attracts $3 billion from Australia and from Spain," he said. "It's the kind of environment that we can have hereon."
Pikka Phase 1 operations
Development drilling at Pikka Phase 1 commenced in June 2023.
"Pikka Phase 1 is exploiting the very heart of what we call the Nanushuk 2 and 3 reservoirs; the Nanushuk is the new play in the Torok formation," Balash said. "We think we've done a pretty good job of collecting some of what is the best of the Nanushuk, and we've got a very thick section here in any event."
The Nanushuk 2 and 3 play is fully appraised at Pikka with excellent control of reservoir properties and deliverability, based on seven nearby appraisal wells with log data and five wells with core data around the NDB laterals, the company said. Four flow tests constrain deliverability around the Phase 1 area of interest.
When phase one is complete, the company will have drilled 45 total wells, 22 producers and 21 injectors; one grind and inject disposal well; and one produced water disposal well. The shortest well will be 7,600 feet, and the longest well will be 30,000 feet.
"After about five and a half years, we will have drilled 180 miles -- that's a lot of rig time," Balash said.
"We're also going to be stimulating these wells," he said. "We don't have the benefit of the old Ivishak fine or even Alpine sands; these are tighter rocks, and they need a little help to let go of their oil, but we think this is all very, very doable."
Fracking will require 2.5 million pounds proppant per well.
Completion of the Phase 1 production facilities will take three winters, Balash said.
The facilities will include the Nanushuk Drillsite B, the Nanushuk Processing Facility with 80,000 bpd processing capability; a seawater treatment plant with 100,000 barrels of water per day capacity, expandable to 150,000-200,000 water bpd; over 100 miles of oil, gas, and water pipelines; a grind and inject facility; an operations pad; and a tie-in pad.
"We've got multiple material sourcing activities underway, lots of prep staging and preparing for the winter and we've got about 200 people out there now," Balash said. "The drilling operation is underway."
Crews moved in during the winter to build ice roads built, install 5000 BSMs (fluid transfer pumps), and begin the pipe installation, he said, adding, "That number is going to exceed 1,000 -- we've prepared 1,200 beds on the Slope this winter, and we heard from Alaska Airlines this week that they're resuming the daily doubles up to Deadhorse."
Module pieces for the facilities are assembled elsewhere and brought up in smaller loads by truck -- reducing the risk of open water seasons and helping to level the load with the workforce, Balash said. "It will allow us to procure replacement parts for maintenance should need arise."
"That approach was utilized in Northern Canada for more than a decade -- bringing the unit cost down, making many copies of the same thing over," he said. "We get better, I think, on the 300th version of it instead of the third."
"The emissions profile will be very, very low," Balash said.
"One single set of high efficiency turbines that generate all our power will electrify all of our facilities and drill rigs that are currently operating on diesel power," he said. "We'll convert that to highline power and really drop that carbon emissions intensity number down to a very attractive level."
