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Vol. 20, No. 23 Week of June 07, 2015
Providing coverage of Alaska and northern Canada's oil and gas industry

Explorers 2015: Brooks Range Petroleum finally in development

As the company focuses on development campaign, its once-prolific exploration efforts have slowed

Eric Lidji

For Petroleum News

Here are headlines from the three previous editions of The Explorers:

In 2011, “BRPC shifting to development mode.”

In 2012, “Brooks Range on road to development.”

In 2014, “Brooks Range Petroleum moving toward development.”

This year, the story is slightly different. Instead of being in “development mode,” “on the road to development” or “moving toward development,” Brooks Range Petroleum Corp. is actually “in development.” Earlier this year, the company drilled its first wells at the Mustang field, which is the initial development project at its Southern Miluveach unit.

The current schedule calls for bringing the unit into production in April 2016.

As those three previous headlines suggest, the Mustang development project has consumed much of Brooks Range Petroleum’s resources over the past four years.

The company’s last exploration well in Alaska was Mustang No. 1, in early 2012, which appraised a discovery the company had previously made with its North Tarn No. 1 well in early 2011. The last exploration well the company drilled outside of its Mustang project was the North Shore No. 3 well, in the Gwydyr Bay region, in early 2010.

Today, Brooks Range Petroleum and its affiliate Brooks Range Development Corp. operate three units: Southern Miluveach and Tofkat in the fairway between the Kuparuk River and Colville River units and Beechey Point north of the Prudhoe Bay unit.

The company also holds two un-unitized blocks - one between the Kuparuk River and Colville River units and the other between the Badami and Point Thomson units.

To pursue its Mustang development, Brooks Range Petroleum formed a multi-party joint venture with MEP Alaska LLC, TP North Slope LLC and Caracol Petroleum LLC. The joint venture entered into a public-private partnership to fund initial project infrastructure.

To create the joint venture, Alaska Venture Capital Group LLC and its partner Ramshorn Investments Inc. sold a 90 percent stake in their Alaska holdings and 100 percent interest in their operating arm Brooks Range Petroleum Corp. to the three-company consortium for $450 million. Although the new joint venture is currently focused on bringing Mustang into production by 2016, the deal also included the exploration prospects.

The Beechey Point unit

Alaska Venture Capital Group was among the first independent companies to see opportunity in the aging of the North Slope. The company was created explicitly to develop fields passed over during the first decades of North Slope development.

The Kansas-based company initially struggled to find partners to share the cost of exploration activities and to negotiate access agreements with existing facility operators on the North Slope, although in 2004, after forming an operating arm called Brooks Range Petroleum Corp., the company established a multi-party joint venture.

The joint venture became among the most prolific exploration outfits on the North Slope, drilling in the Gwydyr Bay region north of Prudhoe Bay and the fairway between the Kuparuk River and Colville River units and amassing leases south of Point Thomson.

The joint venture started its exploration efforts in the Gwydyr Bay area in 2007.

The Alaska Venture Capital Group had initially picked up a minority working interest in several leases in the Gwydyr Bay area through a 2001 land swap with Phillips Petroleum and formed the Sakonowyak River unit that summer with majority interest owner BP Exploration (Alaska). The partners planned to drill two exploration wells by May 2004.

After a year and a half of challenges - searching for partners to defray costs, negotiating access to existing infrastructure and finalizing farm-in agreements and licensing for seismic - Alaska Venture Capital Group cancelled the program and disbanded the unit.

The company acquired the acreage again in 2005. “Initially we were just going to drill in one prospect,” former President Ken Thompson told Petroleum News at the time. “We then acquired seismic and reviewed well records and identified a second prospect.”

The company planned a two-well exploration program for early 2007.

The 10,319-foot North Shore No. 1 targeted an oil accumulation in the Ivishak formation that was first tested by Mobil Oil with the Gwydyr Bay South No. 1 well in 1974. The well encountered “approximately 70 feet of oil-charged Ivishak sandstone formation.”

The 11,348-foot Sak River No. 1 followed up on a prospect previously included in the BP-operated Sak River unit. The well proved to be a dry hole, although the results were intriguing enough for the joint venture to consider returning to drill a sidetrack.

That winter, the joint venture also commissioned a 130-square-mile 3-D seismic survey.

The results “identified two small satellite prospects to North Shore No. 1 that can be reached from the North Shore No. 1 drilling pad,” according to a partner TG World Energy Inc. Those results started the company along its current path - finding a way to string together several marginally economic prospects into a single, profitable development. TG World Energy described the strategy as “establishing a threshold” for development. Potential solutions included two production pads or extended reach drilling.

In early 2008, Brooks Range Petroleum re-entered North Shore No. 1 to test the Ivishak and the shallower Sag River formations. The Ivishak flowed at 2,092 barrels of oil per day. A mechanical problem downhole compromised the Sag River test, although TG World estimated that an unencumbered test could have flowed at 1,000 barrels per day.

That summer, the joint venture acquired the nearby Pete’s Wicked prospect, a discovery BP made in 1997 and Pioneer Natural Resources Inc. acquired in a 2003 lease sale. The acquisition provided an additional opportunity for bundling several prospects together.

After forming the Beechey Point unit in 2009, and settling a dispute between partners that prevented drilling that year, Brooks Range Petroleum returned to Gwydyr Bay in early 2010. The company drilled the Sak River No. 1A sidetrack and the North Shore No. 3 delineation well. TG Energy World reduced its presence in the joint venture following the results of Sak River No. 1A. The remaining partners suspended North Shore No. 3.

“Sak River No. 1A was truly an exploration project with a pre-drill risk factor of 1 in 5, unfortunately the well encountered mainly water from the Kuparuk formation,” Brooks Range Petroleum Chief Operating Officer Bart Armfield wrote in a completion report for the season, which was released after a mandatory two-year delay. Although the company had plugged and abandoned the original Sak River No. 1 well, it decided to suspend the sidetrack, which would allow it to be used to provide pressure maintenance for future wells in the Sag River formation. The company said it was considering plans for a second sidetrack, which would aim for an “up-dip target of the Kuparuk,” Armfield wrote.

North Shore No. 3 “identified a common oil/water contact between the Sag and Ivishak formations and presents a reduced reserve base for the North Shore development,” Armfield wrote, adding that the company had now discovered reserves at North Shore No. 1, North Shore No. 3 and Pete’s Wicked, which would guide future activities.

By the following winter, though, the joint venture was focused on the North Tarn prospect, which became the basis for its current development at Southern Miluveach.

Terminate or proceed?

The Beechey Point unit is currently in limbo.

The state formed the unit in 2009. The unit included 25 leases covering some 52,876 acres along the coastline north of Prudhoe Bay. The unit contained five exploration blocks, and the initial unit agreement required Brooks Range Petroleum to drill at least one well in two different exploration blocks by December 2010 and December 2012, respectively.

The North Shore No. 3 well satisfied the first work commitment. The state subsequently extended the deadline for the second work commitment, giving the company until 2014.

With the Mustang development increasingly occupying the company’s attention, Brooks Range Petroleum relinquished some 42,119 acres on the western side of the Beechey Point unit in September 2012, leaving a seven-lease unit covering some 10,757 acres.

The company focused on other project for the next two years.

In September 2014, the state initiated termination proceedings for the unit because the company had failed to meet its work commitments before the end of its initial five-year plan of development, according to then-Natural Resources Commissioner Joe Balash.

Balash said he was unable to justify an extension because the unit had neither a well certified as capable of economically producing oil or gas or an approved plan of development beyond the initial term, either of which can serve as ground for extension.

The company disagreed. In a late September letter, Vice President for Exploration Larry Vendl named two certified wells at the unit and asked for a chance to negotiate a plan of development. The company could potentially start work as early as 2015, Vendl wrote.

The area contained within the Beechey Point unit undeniably includes two wells certified as capable of producing hydrocarbons in commercial quantities: Gwydyr Bay South No. 1 from 1974 and North Shore No. 1 from 2007 and 2008. Both wells, though, were drilled before the state approved the Beechey Point unit. To the state, that made them irrelevant for extending the terms of the unit. To the company, it made no difference.

The state certified the North Shore No. 1 well in July 2008, approved the Beechey Point unit in August 2009 and told the company to apply for a recertification by August 2010.

To Brooks Range Petroleum, this request for a “recertification” signified a changing standard. No other operator had been asked to perform a similar task, according to the company. In 2010, the company asked the state to reconsider the requirement. The state never responded, according to the company, which is why the two sides now disagree.

The Beechey Point unit agreement required the company to file annual reports with the state, permit a North Shore Development Project, apply to form an initial participating area and drill two wells. Brooks Range Petroleum met the first three requirements, although the state had yet to rule on the participating area application at the time the termination proceedings began. Failure to drill the second well was the sticking point.

Given that it had invested more than $85.5 million in the unit, Brooks Range Petroleum felt it should be given the opportunity to negotiate an extended plan of development.

“The potential for successful exploration and development in this area requires the compilation of several prospects with known reservoir reserves in close proximity to one another,” Vendl told the state. “The smaller prospects need to be a part of a larger program; each independent prospect does not support an economic development model.”

The current strategy involves combining various prospects in the region, including the East Shore prospect at Beechey Point, the ConocoPhillips-operated Kup Delta lease and the UltraStar Exploration-operated Dewline unit, all of which are in the immediate vicinity. At the time of the letter, in September 2014, Brooks Range Petroleum was involved in discussions with both ConocoPhillips and UltraStar, according to Vendl.

Another opportunity, Vendl noted, was the 3-D seismic survey BP Exploration (Alaska) Inc. commissioned for the northern end of Prudhoe Bay, including Beechey Point.

In October 2014, Balash agreed to reconsider the termination. The decision came shortly before the election of Gov. Bill Walker, which prompted a turnover of the cabinet. The new commissioner, Mike Myers, had yet to issue a ruling when Explorers went to print.

The Tofkat unit

The second major area of exploration for Brooks Range Petroleum is the region between the Kuparuk River and Colville River units, also known as the “billion-dollar fairway.”

The name reflects the potential of the region, rather than the actual payout. Wedged between the second and third largest fields on the North Slope, and the infrastructure associated with those fields, the region is thought to be primed for oil development.

In early 2008, Brooks Range Petroleum conducted a major exploration program in the area near Nuiqsut. The company drilled the 13,174-foot Tofkat No. 1 exploration well and two sidetracks deviating to the northeast and southwest, respectively. All three encountered oil in the Brookian formation and “secondary targets above the Kuparuk.”

The company estimated that the Tofkat prospect held about 40 million barrels of recoverable oil in the Kuparuk C sands and another 20 million in the Jurassic sands.

Brooks Range Petroleum also commissioned a 210-square-mile 3-D seismic survey, which Vice President of Land Jim Winegarner said the company intended to analyze before it would decide whether, when and where it would drill another well. The company was still analyzing by early 2009 and exploring other prospects by early 2010.

To avoid losing acreage to expiration, the company applied to form the Putu unit in mid-2011. The proposal included 39 leases covering some 39,993 acres of state and Native land. The state ultimately formed two units. The Tofkat unit included 21 leases owned jointly by the state and ASRC covering some 9,131 acres. The Putu unit includes nine state leases covering some 21,946 acres. The nine remaining leases stayed un-unitized.

The Tofkat unit agreement required Brooks Range Petroleum to complete a Tofkat No. 2 well and Tofkat No. 2-A sidetrack into the Kuparuk formation by May 2013, and sanction a Tofkat development by October 2013. The Putu unit agreement required the company to post a $10 million bond to backstop a four-well drilling commitment.

Although the company floated the possibility of drilling the delineation well and sidetrack at the Tofkat prospect in early 2013 to confirm the size of the previous discovery in the Kuparuk formation and to test a deeper target in the Jurassic formation, the Mustang project delayed those drilling plans. As of April 2015, the state had yet to decide whether to advance termination proceedings or extend the term of the unit.

The company relinquished the Putu unit in September 2012, saying it wanted to focus its resources on bringing Mustang into production and exploring other prospects.

The Kachemach unit

Over the 2011 and 2012 exploration seasons, Brooks Range Petroleum drilled the North Tarn No. 1 exploration well, the North Tarn No. 1-A sidetrack and the Mustang No. 1 delineation well. The wells tested the Brookian formation and deeper Kuparuk formation.

During that time, the company also merged its seismic data for the region with data purchased from ConocoPhillips to consolidate some 570 square miles of 3-D seismic.

The exploration work confirmed a discovery in the range of 40 million barrels of recoverable oil from the Kuparuk, which was much bigger than expected. The discovery prompted the company to seek public financing for initial project infrastructure and a new joint venture to fund ongoing development activities, which are currently under way.

As the project advanced, Brooks Range Petroleum asked the state to form the Southern Miluveach unit. Instead, the state formed two smaller units: the 8,960-acre Southern Miluveach unit over five leases and the 16,487-acre Kachemach unit over 11 leases.

The Kachemach unit agreement split the area into two exploration blocks and required the company to complete two wells in Block A by May 31, 2013, and a third well in Block B by May 31, 2014. Those wells were competing with other prospects for financing. “Decisions on proceeding - or not proceeding - with some or all of these wells will be made in the next few months and will be based on working interest owners’ technical and capital budgeting priorities,” Thompson told Petroleum News in mid-2012.

After discussing the project with Department of Natural Resources officials toward the end of the year, the company said it was continuing to “re-process and merge acquired seismic data to identify optimal drilling location and target” and planned to drill an exploration well in early 2014, after discussing the project with working interest owners.

By that point, the unit was in default, which occurred in mid-2013 when Brooks Range Petroleum missed the deadline for its initial two wells. As is common in Alaska land management, the state gave the company a chance to cure the default by drilling both wells by May 31, 2014, with a year extension for the second if the first was a dry hole.

The state initiated termination proceedings in June 2014, after the company failed to cure the default. The company proposed four alternatives, which involved various configurations to either shrink the unit or enlarge it to encompass nearby prospects.

Specifically, Brooks Range Petroleum wanted to coordinate exploration activities at Kachemach with those at the nearby Placer unit, operated by ASRC Exploration LLC.

ASRC Exploration and Brooks Range Petroleum executives had met with state officials in September 2013 to present “a unified position” for exploring the greater Placer area.

The meeting convinced the state to give ASRC Exploration some leeway for its efforts.

The joint program never materialized, though. By early 2014, Repsol E&P USA Inc. was discussing plans to form the Tapqaq unit in the region. With the Placer unit, the nearby Kachemach unit and the proposed Tapqaq unit, “three lessees intend to drill multiple wells in adjacent leases which are already unitized, or proposed to be unitized, and those wells may be targeting the same potential reservoir or reservoirs,” Balash wrote in a March 2014 letter. Given the potential for inefficient development, “I have decided to defer unit decisions in this area until the end of the drilling season,” he added. That decision failed to protect Kachemach, which the state terminated in October 2014.

The South Thompson prospect

The other prospect in the Brooks Range Petroleum portfolio is the eastern North Slope.

By early 2006, the company was touting the Slugger prospect south of the Point Thomson unit as one of many prospects it hoped to pursue in the years to come. The company picked up additional leases in the area the following year. Low snow cover in early 2008 led the companies to postpone a 130-square-mile 3-D seismic program.

The six years since then have mostly seen administrative issues.

In early 2011, Brooks Range Petroleum proposed the Greater Bullen unit including 68 leases covering some 200,179 acres between the Point Thomson and Badami units. The proposed unit included the Friezen, Red Dog and Telemark prospects. The proposal included plans for two 3-D seismic surveys in advance of exploration and development.

Brooks Range Petroleum ultimately withdrew the application in September 2011 and surrendered approximately 100,000 acres in the area in order to focus on a smaller area.

In early 2012, Brooks Range Petroleum proposed the Telemark unit over nine leases covering some 16,235 acres. The proposal included plans to commission a 3-D seismic survey by the end of 2012 and drill an exploration well by the end of March 2014.

The company deferred Telemark exploration until early 2014 “pending negotiations for a joint drilling agreement with Savant Alaska in the adjoining Badami unit.” By late 2012, Savant and Brooks Range Petroleum proposed expanding the Badami unit to include the East Mikkelsen prospect, with plans for Savant to drill an exploration well in early 2014.

Administrative delays have kept that project from advancing.

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