The eastern North Slope Sourdough development is still on hold, with operator Jade Energy unwilling to spend more than the $20 million its already invested in the project until it can convince Alaska Department of Natural Resources officials to reverse their decision that put the acreage in default.
The parties are still talking.
On March 29, DNR Commissioner John Boyle, Deputy Commissioner John Crowther and DNR's Division of Oil and Gas Director Derek Nottingham met with Jade Managing Member Erik Opstad and his team.
In response to an email from Petroleum News about the outcome of the meeting, Crowther responded on April 8 confirming the meeting had taken place.
"We are reviewing their requests but cannot comment further at this time," Crowther said, promising to provide results when they were available.
A follow-up email sent by Opstad to the DNR meeting attendees said, "I hope we successfully conveyed that the conditions imposed by DOG for its approval of the 5th POD materially disrupted the advancement of a program that had been steadily gaining ground since the initial 3D seismic survey of the prospect, conducted by Jade stakeholders in 2018."
He added: "As to the 6th POD matter, I don't want to revisit the subject in detail, but a few high-level comments seem appropriate. Beginning with the initial collection of the Yukon 3D seismic data set covering the Sourdough prospect in 2018, Jade has demonstrated a continuous record of ongoing technical and field work to advance understanding of the reservoir and requirements for its potential development." Opstad listed some 30 examples, noting there were "dozens" of other reports, studies, analysis, presentation slide decks and so forth.
"I am sure you get the point that Jade has devoted a significant amount of time, money, and resources to thoroughly evaluate the Sourdough development opportunity," Opstad wrote in his email to the DNR/DOG March 29 meeting attendees.
Jade's takeaway? In response, Opstad listed the following, verbatim:
1. The Sourdough prospect, as confined to ADL 343112, Segment 2, represents a small development opportunity that could grow into a larger program if surrounding contiguous resources can be added to the development scenario. We don't see any operational hurdles to speak of. The Jade operations team just finished a 2-year program with a stakeholder that successfully delivered 2 exploration wells and 4 abandonment programs on federal lands in NPRA more than 100-miles off North Slope infrastructure. Given that, we don't think the Jade-1 well which is only 65-miles east of the Endicott causeway and less that 4-miles from PTU Central Pad, will pose much of a challenge operationally. Additionally, years of operating Badami has given us broad experience in high-pressure reservoir operations, so that is unlikely to be an issue either.
2. Sourdough development economics are problematic. I think one of our investors said it best when simply saying that "the state's take is too great." They got that right! The 40% Net Profit Share take materially impacts project economics and the other burdens just aggravate the situation further. Jade worked extensively with the DOG Commercial Analytical staff running numerous economic scenarios. The best outcome was that Jade might break even some day! Obviously, something needs to change that outcome, not just for Jade, but for everyone else with an interest in the project. In mid-2023 Jade was able to construct a development model that yielded a positive NPV and creatable IRR, but only by aggressively deferring typical North Slope project CAPEX way into the future. A dicey plan at best!
3. Then there is the 5th POD issue. The conditions of approval in that document, in our opinion, offered no benefits to anyone, not the State of Alaska, not Jade or its stakeholders, not our vendors or Native partners, not residents at large, NO ONE! More than enough has been said about that subject, so I'll just move straight to the ask.
The Ask
To get the Sourdough Development Program back on track, Jade is requesting that DNR/DOG approve the 6th POD.
"Such an approval will put all the angst and controversy surrounding the 5th POD conditions of approval in the rearview mirror, allowing us all to refocus on making Sourdough economics work and on attracting the investment capital needed to execute the project. Hopefully, approval of the POD would also be interpreted positively by all the local, national, and international folks that have taken such an interest in this subject," he wrote.
"By way of some related housekeeping, I would also suggest that the 6th POD be approved for a 2-year term. That would align Jade's POD cycle with that of the Point Thomson unit, which is also on a 2-year cycle. We don't coordinate our PODs in any way, but an alignment of the timeline can provide some planning synergies and it would cut out some near-term paperwork related to filing the 7th POD, the filing date for which is seemingly just around the corner."
Stay tuned....
PTU producing into storage
The North Slope Point Thomson unit is in production but not shipping its condensate, according to a Petroleum News source, who said production began in March with volumes going into storage on site subject to availability of the pipeline from Point Thomson to Badami.
The Point Thomson Export Pipeline was shut-in after a leak was discovered Jan. 13 by Harvest Alaska LLC, the pipeline operator. Harvest is a subsidiary of Hilcorp, which operates the field on behalf of itself and majority working interest owner ExxonMobil Production.
Alaska Oil and Gas Conservation Commission data show 14 days of oil production from the field in January, none in February. March data will not be available from AOGCC until late in April.
Situation reports from the Alaska Department of Environmental Conservation's Division of Spill Prevention and Response say Harvest received a leak detection alarm at 10:10 p.m. Jan. 13, and isolated the line, with visual confirmation observed from aircraft on Jan. 14 at 11:54 a.m., followed by confirmation by a ground survey crew shortly after.
DEC said the release was some 35 miles east of Prudhoe Bay and about 1 mile southeast of the Badami Pad.
From Badami Point Thomson crude moves in the Badami pipeline.
The last DEC situation report, issued Feb. 2, said the amount of condensate released was being determined, with maximum calculated by Harvest at 275 barrels, with investigation of the cause of the spill on-going.
Following the leak alarm the pipeline "was immediately shut-in and depressurized," DEC said, stopping any remaining condensate from leaving the line, with installation of a repair clamp completed Jan. 28.
In December, AOGCC data show Point Thomson production averaged 3,754 bpd.
--Oil Patch Insider is compiled by Kay Cashman
