Linc Energy Ltd. sees a “clear path” to development of the Umiat oil field after a flow test produced a sustained rate of 250 barrels of oil per day, according to the company.
The Australian independent produced a total of 650 barrels of oil from the Umiat No. 23H well during four flow tests conducted over seven days at the undeveloped field in the foothills of Alaska’s Brooks Range Mountains. The well flowed at the peak rate of 800 bpd, according to the company. On-site analysis suggests the oil is light, sweet 38.5-degree API oil with no water, but Linc intends to perform more in-depth laboratory analyses.
With a gas drive installed, Linc believes the well could flow at 2,000 bpd. The company believes full field development of Umiat could yield as much as 50,000 bpd at its peak.
“I was fortunate enough to be on site at Umiat during the oil flow and was very impressed with how easy the well flowed and the quality of the oil, which is light sweet crude,” Linc Energy CEO Peter Bond said in a statement released March 31. “I’d read stories of how the U.S. Navy was known to put the Umiat crude oil straight from the well head into their trucks and drill rigs. And after seeing and experiencing the oil for myself I can see why they would do this, as the Umiat oil looks like and has the consistency of diesel fuel, just fantastic quality oil that did not change throughout the flow test.”
The Umiat reservoir is notoriously shallow. The Umiat No. 23H well included a 2,200-foot lateral section located less than 1,000 feet below the surface, according to Linc.
Shallow challenge
Among the problems of drilling such a shallow well in northern Alaska is keeping the surrounding permafrost from thawing, which would allow water to seep into the formation. The producing interval in the Lower Grandstand formation was “completed successfully with a non-damaging prototype reservoir drilling fluid,” according to Linc.
In addition to special drilling fluids, Linc completed the horizontal well with a slotted liner and down-hole electric submersible pumps to mimic the “open hole” completion technique used on some vertical wells. “We have now proved that the oil flows easily from the Umiat reservoir with very good permeability and that the drilling process of utilizing horizontal wells with slotted liners with ESP down well pumps as per our commercial design has been a success,” Bond said. “And with this success and the knowledge gained from last year’s drilling program, Linc Energy now has clear a path for the commercial development of the billion barrel (original oil in place) Umiat field.”
The lateral encountered more than 950 feet of net pay in the Lower Grandstand, Linc said.
Now comes permitting
While visiting Alaska, Bond met with Alaska Gov. Sean Parnell to show off a sample of Umiat crude and discuss the permitting effort needed to bring the field online, according to Linc.
The Umiat field is generally considered to be the largest known and undeveloped oil field in Alaska, and geographic isolation is among the main reasons it has remained undeveloped since the U.S. Navy discovered it in 1946. For each of the past two seasons, Linc has built a roughly 100-mile snow road connecting the field to the Dalton Highway.
Bringing the Umiat field into production would likely require a permanent all-season road and a long pipeline — both of which present logistical and permitting challenges.
The state-backed Foothills West transportation project would build a road to Umiat, but the project is far from certain. The Alaska Department of Transportation & Public Facilities began an environmental impact statement in 2011, but the U.S. Army Corps of Engineers recently closed the project file because the state is “re-evaluating” its plans.
The project yielded criticism in recent years from local groups worried about the impact of the road on rural life and from those who called the project “corporate welfare.”
The state could still reopen the project without having to start from scratch, but the clock is apparently ticking. The state expects the U.S. Army Corps of Engineer to file a notice of termination at the end of 2014, unless the federal agency hears otherwise.
While Linc has previously praised the state for initiating the project, the company also said a state-sponsored road would not be the defining factor in making Umiat economic.
Incentives matter
However, Bond praised the state for “various incentive” programs, including the most recent revision of the tax code: Senate Bill 21, also known as the More Alaska Production Act. “As I said to Governor Sean Parnell, without these incentives it would not be possible for Linc Energy to drill and develop Umiat, and for me to be standing in front of you with a container of sweet light crude oil which has just flowed from the Umiat field,” Bond said. “It may not be well known but approximately 65 percent of the cost of development of the Umiat oil field is paid for via these state incentive programs.”
The 65 percent figure comes from exploration tax credits initially implemented under the Alaska’s Clear and Equitable Share fiscal regime, which MAPA replaced. The MAPA regime maintained the credit program, but changed how the state taxes oil production.
This summer, voters will decide whether to keep MAPA or repeal it. Proponents of the law believe it will induce production while opponents see it as a giveaway to industry.
With the flow test done, Linc said it is “now moving forward to complete environmental studies, permitting, and engineering of the surface facilities for the Umiat commercial operation, including finalizing the best routes for the Umiat pipeline and road.”
