Pioneer Natural Resources Inc. is in the early stages of its second phase in Alaska.
About a decade ago, the Texas-based independent arrived in the state eager to bring a new business model to the North Slope. Having succeeded, the company is now trying to improve the economics of its offshore oil field with technology and infrastructure.
Using completion techniques borrowed from its unconventional oil operations in the Lower 48, Pioneer believes it can improve production rates at its offshore gravel island at Oooguruk.
And now the company is looking to expand the island to accommodate more wells, and complement it by building onshore facilities to target a reservoir south of the island.
The Oooguruk unit currently comprises 22 leases covering some 52,000 acres.
Pioneer operates the unit and holds a 70 percent working interest in the leases, while the Italian major (and neighboring operator) Eni Petroleum holds the minority interest.
The Oooguruk unit was averaging some 7,476 barrels per in July 2013. Cumulatively, Pioneer produced some 13.7 million barrels of oil at Oooguruk through July 2013.
An independent mindset
When Pioneer acquired a stake in an Armstrong Resources prospect in the Beaufort Sea in 2002, the company wanted to reduce the “cycle time” for North Slope developments.
The first four decades of North Slope oil development involved some of the largest oil companies in the world spending many years to develop some of the largest oil fields in the world, in one of the harshest and most expensive petroleum basins in the world.
Having recently brought two deepwater Gulf of Mexico fields into production just two-to-four years after making their initial discoveries, Pioneer believed northern Alaska could accommodate quicker turnaround times as well, Chris Cheatwood, the executive vice president of worldwide exploration for Pioneer, told Petroleum News in early 2003.
“You see those kinds of cycle times in other parts of the country, and that’s what companies want to see in Alaska. We go in and make substantial investments in wells and leases and we want to be able to bring those prospects into production as soon as possible. … The independent model is to quickly turn investment into cash flow,” he said.
Cheatwood was primarily referring to the Northwest Kuparuk prospect — Armstrong’s original name for the Oooguruk field — but Pioneer acquired more than 1.6 million acres during its first few years in the state, giving the company numerous prospects to pursue.
Concurrent with its exploration at Oooguruk, Pioneer undertook a range of exploration ventures — some alone and some through joint ventures. But a multiwell exploration program in the winter of 2005-06 and a subsequent venture in the National Petroleum Reserve-Alaska were both disappointing. In late 2007, Pioneer relinquished the majority of its NPR-A acreage and suspended its Alaska exploration program to focus on two developments: Oooguruk and the offshore Cosmopolitan prospect in Cook Inlet.
Pioneer spent several years trying to make Cosmopolitan economic before relinquishing the ancillary acreage of the prospect in early 2011 and selling the core leases to Buccaneer Energy Ltd. and BlueCrest Energy Inc. the following year. With the transaction, Pioneer focused its Alaska efforts entirely on growing the Oooguruk field.
Bringing Oooguruk online
At Oooguruk, Pioneer saw the potential for a new business model.
“How many basins have had a second, third or fourth exploration and development lives after the majors wind down growth investment in an established basin? — almost every basin,” Pioneer CEO Scott D. Sheffield told Petroleum News in November 2002.
A three-well program in early 2003 provided some early challenges.
The 6,700-foot to 6,900-foot (true vertical depth) wells all encountered oil in the Kuparuk C sands, but the sands “were too thin to be considered commercial,” Pioneer said. A deeper test “encountered thick sections of oil-bearing Jurassic-aged sands,” but questions about permeability, the size of the resource and recovery rates tempered any enthusiasm.
Even so, Pioneer fast tracked development.
After the state formed the Oooguruk unit in July 2003, Pioneer spent the next two-and-a-half years studying development schemes to find an economic way to produce oil from the technically challenging project in the shallow nearshore waters of the Beaufort Sea.
Gravel island development
Ultimately, Pioneer decided to build a six-acre gravel island connecting back to the existing facilities at the Kuparuk River unit. To protect Pioneer against a drop in oil prices, the Department of Natural Resources agreed to a royalty reduction program.
Pioneer sanctioned Oooguruk in early 2006, by which point the Italian major Eni SpA had acquired the 30 percent minority stake in the prospect from Armstrong Resources.
At the time, Pioneer expected to spend as much as $525 million building facilities and drilling some 40 horizontal wells to develop an estimated 50 million to 90 million barrels of gross oil resources. It expected the field to remain economic for at least 25 years.
The construction was challenging.
In addition to a gravel island rising 23 feet from the ocean floor, the project required a 5.7-mile three-phase pipeline bundle that was entrenched to protect against sea-ice, encased to protect against leaks and insulated to keep from thawing the permafrost.
The state originally approved a 20,394-acre unit covering 12 leases, but in early 2007 agreed to add seven leases to the unit, which increased the size to some 50,883 acres.
Pioneer finished building the island and installing the pipeline infrastructure by mid-2007 started drilling development wells near the end of the year using Nabors Rig 19 AC.
After a season of drilling, Pioneer brought the Oooguruk unit online in June 2008, becoming the first independent oil company to operate production on the North Slope.
Building facilities
Oooguruk tested the principles of the Charter for the Development of the Alaskan North Slope, a 1999 agreement signed in the wake of BP’s acquisition of ARCO and agreement to sell ARCO’s Alaska assets to Phillips Petroleum. To make the North Slope friendlier to independents, the state forced the majors to provide access to their facilities.
After long negotiations, Pioneer and ConocoPhillips reached an “agreement in principle” on a facility sharing arrangement in 2006, but various complications, including changes associated with Alaska’s Clear and Equitable Share, the tax change enacted in 2007, added months of delays. The companies finally signed the agreement in early 2008, with Oooguruk drilling under way.
While not the first such deal on the North Slope, it became the first to be utilized and it has informed how other independents and newcomers have developed their prospects.
While the facility sharing agreement kept Pioneer from having to build expensive production facilities, it has left the company vulnerable to complications outside its control. For example, within weeks of startup, Pioneer was forced to suspend Oooguruk production to accommodate planned maintenance work at the Kuparuk River unit.
And difficulties getting enough water for enhanced oil recovery from its usual supply at Kuparuk forced Pioneer to scale back its production for several weeks in early 2009.
The arrangement spawned another first.
The Alaska Oil and Gas Conservation Commission allowed Pioneer to use multiphase flow meters at Oooguruk, the first time the technology was used in Alaska between units operated by different companies. A multiphase flow meter allows operators to measure oil, gas and water production without having to separate the stream into its constituents.
The meters can be less accurate than traditional LACT, lease automatic custody transfer, meters, but the conditions at Oooguruk minimized the possibilities of significant errors, according to the AOGCC.
Three oil pools
The initial development scheme focused on two oil pools, the Kuparuk and the Nuiqsut.
Using primary and secondary methods, Pioneer originally expected to recover between 41 million and 98 million barrels from the 265 million to 325 million barrels of original oil in place between the two reservoirs. A breakdown attributed 4 million to 8 million barrels to the Kuparuk and 37 million to 90 million barrels to the deeper Nuiqsut.
The Kuparuk performed better than expected, though, and a 3-D seismic shoot suggested more opportunities within reach of the island. So in early 2009, Pioneer increased its resource estimate for the entire Oooguruk unit to 150 million barrels of recoverable oil.
Through the remainder of the year and into 2010, Oooguruk production rose as Pioneer saw good results from the Kuparuk and drilled dual lateral wells into the Nuiqsut.
All this initial drilling at Oooguruk — including the early exploration work — passed through a third, even shallower reservoir en route to deeper targets. In early 2010, Pioneer specifically targeted this reservoir, known as the Moraine or Torok formation.
The potential resources in the Torok formation underpinned the decision to bump the resource estimates for the field, but created a technical challenge. The formation extended quite far south from the gravel island, meaning Pioneer would either need to drill extended-reach wells or construct a second, onshore pad to access the additional resources.
The Nuna development
By late 2010, Pioneer proposed the Nuna development project.
The proposal called for expanding the unit to include leases to the south and building as many as two onshore drill sites in the Colville River Delta. The increased oil production might even justify building a standalone production facility, the company hypothesized.
The state approved the expansion request in early 2011, but required the company to decide by June 2014 whether it would sanction the Nuna development.
To inform its decision, Pioneer drilled two exploration wells in early 2012: the Sikumi No. 1 from an offshore ice island and the directional Nuna No. 1 from an onshore ice pad.
A “deep test” of the Ivishak at the Sikumi well was “basically non-commercial” despite a gas show, but the Nuna well yielded a 50 million barrel discovery from the Torok.
The results prompted Pioneer to test Nuna No. 1 and drill the Nuna No. 2 appraisal well in early 2013. Again, the results prompted Pioneer to increase its resource estimate for the Torok, this time to a range of 75 million to 100 million barrels, up from 50 million.
Operations expansion proposed
In August 2013, Pioneer proposed significantly expanding both its offshore and onshore operations to improve seawater-delivery and to accommodate Nuna drill site facilities.
The project calls for adding 4.15 acres to the six-acre offshore gravel island, adding 1.4 acres to its onshore tie-in pad south of Oliktok Point along the Colville River Delta, and building a 5.2-mile seawater flowline connecting the island to a new tie-in pad to be located some two miles north of Central Processing Facility 3 at the Kuparuk River Unit.
The Oooguruk island expansion would accommodate additional wells to increase oil production and improve logistics for the helicopters required to serve the offshore unit.
The expansion would accommodate 12 additional well slots in two rows of six.
The renovation is also designed to accommodate a new helicopter sling loading operation on the northwest side of the island, near an existing gravel loading ramp for barges.
The expansion of the existing tie-in pad would accommodate facilities for a Nuna drill site. By placing the Nuna drill site facilities at the existing tie-in pad, Pioneer would be able to maximize its existing infrastructure and avoid some duplication. The expansion would include a short 12-inch three-phase flowline from the tie-in pad to Kuparuk River Unit Drill Site 3H, where production from Nuna would join Oooguruk production.
The seawater delivery system would allow Pioneer to improve its water sourcing for drilling operations. The seawater flowline and the new tie-in pad would serve both sites.
To accommodate both the existing Oooguruk drill site and the proposed Nuna drill site, the proposed seawater flowline would be larger and more reliable than the existing flowline, according to Pioneer. The new flowline would connect to an existing ConocoPhillips 30-inch supply header coming from the Seawater Treatment Plant.
The expansion request suggests Pioneer is moving toward a yes-vote for Nuna, but the company had yet to sanction the project by its second quarter earnings report in May.
Mechanical diversion
In early 2012, Pioneer also tested a new completion strategy at its development wells.
By using a “mechanical diversion” fracturing system borrowed from its Eagle Ford shale operations, Pioneer was able to stimulate a larger portion of the Nuiqsut reservoir than it had using a “dynamic diversion” fracturing system. The completion technique yielded “by far our best Nuiqsut well,” Pioneer Chief Operating Officer Tim Dove said in May 2012.
With widespread application, the technique should help turnaround lagging production, according to Pioneer. After peaking above 10,000 bpd in the summer of 2010, the Oooguruk unit produced some 7,100 bpd in the summer of 2012 and less in early 2013.
With July 2013 production nearing 7,500 bpd, the technique appears to be working.
