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Vol 21, No. 21 Week of May 22, 2016
Providing coverage of Alaska and northern Canada's oil and gas industry

The Explorers 2016: ASRC finally operates North Slope exploration

After years of apprenticeship and regulatory delays, company drills Placer well


For Petroleum News

Although it has been an important player in the oilfield services sector for years, and has recently been learning the ropes of Arctic exploration and production, Arctic Slope Regional Corp. officially became an explorer this year through ASRC Exploration LLC.

In early January 2016, the Alaska Oil and Gas Conservation Commission issued a permit for the subsidiary of the Alaska Native corporation for the North Slope region to drill the Placer No. 3 exploration well in the area immediately west of the Kuparuk River unit.

The well is the culmination of a decade-long apprenticeship, during which time ASRC Exploration learned the intricacies of operating in Arctic conditions. This era began when ASRC entered into a “mentoring” agreement with BP Exploration (Alaska) Inc. in March 2003. The agreement established “a framework for sharing data and technical knowledge,” including information about in-unit and near-unit oil and gas investment opportunities on the North Slope, the two companies told Petroleum News at the time.

The agreement marked a change. Negotiations started in 1999 and continued in 2002, years when ARCO Alaska was divesting its holdings in the region, BP was shifting its focus away from exploration and smaller independents were establishing leaseholds.

The current effort at Placer followed a decade of activities.

Inheriting Placer

In early 2004, ConocoPhillips Alaska Inc. drilled the Placer No. 1 and Placer No. 2 exploration wells at the western edge of Kuparuk on behalf of BP, Union Oil Company of California, ChevronTexaco and ExxonMobil. The first well encountered some 17 feet of hydrocarbon-bearing sands in the Kuparuk formation. The second well delineated the Kuparuk C formation slightly to the northeast. Through its mentoring agreement, ASRC farmed in the BP acreage, gaining a 35 percent interest in Placer No. 1. But despite favorable results, ConocoPhillips never pursued development and the leases expired.

Still interested in Placer, ASRC acquired the prospect in a March 2006 lease sale. After considerable negotiations, the company acquired the Placer No. 1 well in June 2010 and had acquired a license over an earlier seismic survey of the region by early 2011.

During those years, while pursuing Placer, ASRC also gained operating experience as a minority partner in the Badami unit. At first, ASRC and Savant Alaska LLC acquired an interest in the BP-operated unit at the eastern edge of the North Slope. Over time, they acquired the unit and associated infrastructure outright, with Savant serving as operator.

By early 2011, the five-year leases at the Placer prospect were on the verge of expiring, leaving little time to arrange and conduct an exploration program. ASRC asked the state to form the Placer unit over four state leases covering some 8,769 acres. The Alaska Department of Natural Resources was skeptical about the size of the unit and the timeline of activities proposed, which called for reprocessing seismic by the end of 2012 and either re-entering Placer No. 1 or drilling Placer No. 3 by the end of June 2014.

Instead, in September 2011, the state approved a 1,480-acre unit covering portions of four leases - restricting the unit boundaries to the area immediately around Placer No. 1.

Regulatory debate

After reprocessing the seismic information, ASRC asked the state to expand to unit to the original boundaries and extend the deadlines for work commitments by one year.

The company needed more time because it was struggling to secure a rig for operations and needed more area because the prospect appeared to extend beyond the unit boundaries.

Any well drilled within the smaller unit would be a “twin” of Placer No. 1, the company argued. If the prospect extended far enough to the south, it would present opportunities for partnering with Brooks Range Petroleum Corp. on a regional development plan.

After ASRC and Brooks Range Petroleum presented a “unified position” for Placer exploration to state officials, then-Alaska DNR Commissioner Dan Sullivan conditionally approved the expansion and the extension, requiring ASRC to post a $5.4 million bond to backstop its new work commitments.

As the two companies worked out the terms of a partnership, Brooks Range Petroleum proactively permitted a two-well exploration program at Placer. But after months of negotiations, the two companies were unable to come to terms and the program ended.

When Repsol E&P USA Inc. applied to form a unit in the region, the potential for overlapping exploration activity concerned the state. In March 2014, then-DNR Commissioner Joe Balash deferred unit decisions until the end of the season.

In November 2014, in the early days of the Walker administration, the state approved an expansion of the Placer unit, requiring ASRC to post a $2.5 million performance bond by mid-January 2015 and meet a series of commitments culminating in a well by May 2016.

The state approved an operations plan for Placer in January 2016.

ASRC is using the Kuukpik No. 5 drilling rig to drill Placer No. 3 from a 500-foot by 500-foot ice pad. The company planned to access the pad using existing gravel roads in the ConocoPhillips-operated Kuparuk River unit and a temporary ice road from the Mustang pad in the Brooks Range Petroleum Corp.-operated Southern Miluveach unit.

If the well is successful, ASRC said it would complete the well, demobilize the rig and conduct a 30-day flow test, trucking produced liquids to existing facilities, flaring produced natural gas and storing drilling fluids for future disposal in a Class II well.

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