The surge in exploration activity planned for Alaska this winter has placed a major strain on the supply of drilling rigs suitable for use in the demanding conditions of a long Arctic winter. At last count four companies with exploration drilling plans — Linc Energy, Savant Alaska, UltraStar Exploration and Great Bear Petroleum — had yet to sign contracts for drilling rig use. And given the relatively small inventory of Arctic rigs it seems highly improbable that all of these companies will end up drilling in the coming months, assuming that companies with rig contracts do in fact proceed with their planned drilling.
Three other companies, Repsol, Brooks Range Petroleum and Pioneer Natural Resources have seven rigs under contract for this coming winter exploration season: Repsol expects to drill 12 wells; Brooks Range, two wells, plus re-enter a third; and Pioneer, two wells.
Nabors operates 12 rigs
On Nov. 29, David Hebert, general manager of Nabors Alaska Drilling, talked to Petroleum News about some of the issues involved in supplying rigs for Arctic Alaska exploration. Nabors currently operates 12 rigs that are suitable for Arctic use and that are in a fully operational status, Hebert said. An additional Nabors rig on the Kenai Peninsula has not been winterized for the Arctic.
Two of the Arctic rigs are workover rigs for in-field use, while another has a design that is not especially suitable for exploration drilling.
Any of the other active rigs could potentially be used for exploration drilling, but three of those rigs are under contract for development drilling in North Slope oil fields during the winter. Another rig is drilling wells for Cook Inlet Natural Gas Storage Alaska’s new natural gas storage facility on the Kenai Peninsula.
All six remaining Arctic rigs are already contracted for winter exploration drilling, Hebert said. However, Repsol, a company that has contracted for the use of four Nabors rigs during the winter, has recently informed Nabors that it will not in fact require one of those rigs, thus putting one rig back on the market, he said.
However, specific rigs are only suitable for certain types of exploration drilling project — the question of whether a particular rig is available for a particular project will depend on both the design of the rig and the nature of the project, he explained.
“It requires matching a certain rig to a certain type of location.”
Nabors has three rig types
In particular, the weight and means of transportation of a rig impacts the type of drilling site that a rig can reach, Hebert said.
Essentially, Nabors operates three rig types: large wheeled, self-propelled rigs that can traverse ice roads but that cannot cross ice bridges over waterways; truck-pulled rigs that require ice roads but can cross a heavy-duty ice bridge; and modular rigs that can be broken down into truck loads for transportation to remote sites, crossing floating ice bridges en route if necessary.
Nabors has an additional wheeled, self-propelled rig that is currently mothballed and would require at least two months of work to bring back into service, Hebert said, adding that Nabors is not in an immediate position to activate that rig, given the company’s current workload.
A second mothballed rig requires substantial refurbishment involving quite a few months of work, he said. And, although Nabors has other mothballed rigs in Alaska, these rigs require major refurbishment, involving many millions of dollars in expense. Given the substantial cost and time required to bring any of these rigs into operation, an exploration company would have to make a firm commitment for rig use well in advance of a drilling operation, Hebert said.
“That would take some sizable commitment on someone’s part,” he said. “That would not be something that most (drilling) contractors would speculate on.”
Winterization has to be done correctly
Another way of increasing the size of the active Alaska drilling rig fleet would be to bring rigs from Canada or from the Lower 48. However, winterizing a rig for use in northern Alaska’s extreme climate is a major exercise, involving significant cost and time, Hebert cautioned.
“It can be done, but it has to be done correctly,” he said.
Rig winterization involves attention to many details — for example, electrical wiring and hydraulic hosing needs to be Arctic rated, especially given the likelihood of having to transport an unheated rig over a lengthy ice road in extreme cold before a drilling operation starts. Even rigs from Canada require customization for Alaska conditions, Hebert said.
Again, a firm contractual commitment well in advance of when a rig is needed would be essential to embarking on a rig winterization project. And the rig market outside Alaska is tight, potentially making rig acquisition difficult.
Bringing in new rigs is also an option.
Three and a half years ago Nabors delivered the first purpose-built AC rigs for the North Slope in 13 months, from design to delivery. Two and a half years ago the company delivered CDR-2 to ConocoPhillips at Kuparuk; it was the first purpose-built coiled tubing rig designed for the Arctic. It took 18 months, from design to delivery.
Tax, in-field demand are factors
Another variable in rig availability is the amount of in-field development drilling that is taking place, given that both in-field drilling and exploration drilling draw on the same rig inventory. People are projecting the possibility of even more exploration activity in the 2012-13 winter season, Hebert said. But if BP and ConocoPhillips’ field development activity also increases due to the Alaska Legislature passing the governor’s bill that reduces the state’s production tax, rig availability in 2012-13 would pose an even bigger challenge than at present.
“We could easily run out of rigs again next winter,” Hebert said. And some of the Nabors rigs currently under contract for exploration are especially suitable for use on North Slope oilfield well pads, thus making these rigs especially desirable for in-field work, he said.
There is time to refurbish mothballed rigs for next winter, but Nabors would need that up-front commitment for rig use before bringing a rig out of hibernation, he said.
Seven Doyon rigs
Ron Wilson, general manager of Doyon Drilling, told Petroleum News Nov. 30 that Doyon has seven active drilling rigs in Alaska.
Six of those rigs are under contract to North Slope oilfield operators for the coming winter and the other rig, the Arctic Fox, is under contract to Repsol for exploration drilling.
The Arctic Fox is a lightweight rig that can be trucked almost anywhere, he said.
Doyon used to own another lightweight exploration rig, the Arctic Wolf, but that rig is now in Canada; it is owned by Akita Drilling and has been disassembled, Wilson said.
One of the Doyon rigs under contract for in-field work has proved especially successful in the past for exploration drilling, although any of Doyon’s rigs could potentially be used for exploration, depending on whether the transportation route to the drilling site can accommodate the rig’s weight, Wilson said.
Build rather than convert
Wilson said that, given the tight rig supply situation in the Lower 48 and the work required to modify a rig for Arctic use, it could prove simpler to build a new rig rather than convert an existing rig, should additional rigs be needed in Alaska.
However, rig construction might take 16 to 18 months and the construction cost would raise the issue of how much a company like Doyon would be willing to invest on speculation, Wilson said. The investment risk would best be managed by linking rig construction to a specific drilling project, he said.
Wilson also commented on the difficulties that Doyon experienced a few years ago when trying to use a Canadian rig for Arctic Alaska exploration. Severe cold spells in Alaska seem to last longer than in the areas of Canada where Canadian rigs operate, and northern Alaska can also experience challenging wind conditions, he said.
Kuukpik’s 3 rigs drilling in fields
Kuukpik Drilling has an Arctic-equipped drilling rig, suitable for exploration drilling and based in Alaska. However, that rig is under contract for the entire winter of 2011-12, doing gas well drilling in the Barrow gas fields, at the extreme western end of the North Slope.
Kuukpik anticipates its rig being available for drilling on other projects in the winter of 2012-13, Randy Hicks, general manager of Kuukpik, told Petroleum News on Nov. 28.
Nordic-Calista Services has three drilling rigs in operation on the North Slope. Although one of these rigs was used in an exploration project a few years ago, all of the rigs are currently under contract for in-field drilling and are likely to remain in that situation for the foreseeable future, Udo Cassee, Nordic-Calista’s operations superintendent, has told Petroleum News.
