Earlier this year, BlueCrest Energy Inc. announced plans to temporarily suspend its drilling program at the offshore Cosmopolitan unit while it searched for alternative financing. The temporary suspension, though, could likely end sometime in 2018.
The Texas-based independent announced the suspension after the state withheld between $75 million and $100 million in tax credits for previous work at the offshore Cook Inlet unit. The company told Petroleum News in August 2017 it was relying on the credits to make the project economic and was suspending drilling until it found a replacement.
In a plan of development for the Cosmopolitan unit, submitted to the Division of Oil and Gas in late September 2017, BlueCrest said it intended to drill at least one well in 2018 and would evaluate its recent drilling activities to determine its activities going forward.
Rig financing
After several years as a partner at Cosmopolitan, and later as an operator in exploration and appraisal activities, BlueCrest brought the unit into production from an existing well in early 2016 and began development drilling with a custom rig in November 2016.
The BlueCrest Rig No. 1 was designed to accommodate directional wells and laterals drilled to an offshore target from an onshore drilling pad in the Anchor Point region. The rig has a 750-ton top drive and a 7,500-pounds-per-square-inch drilling mud system, making it capable of drilling 24,000-foot wellse at a vertical depth of some 7,000 feet.
In April 2015, the Alaska Industrial Development and Export Authority agreed to loan BlueCrest as much as $30 million toward the $40 million cost of the drilling rig. In addition to seeking AIDEA funding, BlueCrest expected to use state tax credit payments to fund a $15 million reserve account to cover any unexpected shortfalls in financing.
BlueCrest asked AIDEA in late 2016 to revise the terms of the loan. According to the company, work on the drilling rig took longer than expected, which shifted the timeline for drilling to begin and for the company to earn revenue from production. Additionally, according to the company, the deferment of the tax credit payments from the state complicated efforts to fund the $15 million reserve account. AIDEA agreed to extend some of the deadlines in the loan package as well as the terms of the reserve account.
2017 program
BlueCrest initially planned to conduct a five-well program starting in early 2017: the H-16 well, the H-14 well and H-14L lateral, and the H-12 well and H-12L lateral. The company ultimately completed two wells and three sidetracks at Cosmopolitan this year.
The company began drilling the Hansen 16, or H-16, well in November 2016 and completed the well in March 2017. The 22,810-foot well reached a vertical depth of 7,089 feet, according to the Alaska Oil and Gas Conservation Commission. The company described the well as the longest extended reach well ever drilled in the Cook Inlet.
As of late September 2017, after a fracturing operation, the H-16 well was producing 330 barrels of oil per day from the Hemlock formation, according to the company. The compartmentalized nature of the reservoir requires fracturing operations after drilling activities have been completed to open up impervious barriers in the reservoir rocks.
The fractures at the Cosmopolitan unit are larger than previous Cook Inlet fracturing efforts and closer to developed areas than most Alaska operations. Those two factors turned the project into a symbol of the industrial process in hearings before the Alaska Oil and Gas Conservation Commission about hydraulic fracturing regulation in Alaska.
In mid-March 2017, BlueCrest began drilling the H-14 well and the associated H-14L lateral. A technical problem on the lateral complicated operations at the project.
“BlueCrest was running the liner into the H14 Lower Lateral when the Baker Hughes Packer/Liner Hanger Assembly failed and prematurely & permanently set the liner in the well (-4,000 ft. short of TD (total depth)),” the company wrote in its plan. “BlueCrest completed a milling/fishing job to recover the liner that was left in the cased hole.”
BlueCrest started three separate sidetrack operations on the H-14 Lower Lateral before completing the well at 22,300 feet on Sept. 25, 2017, according to the company. As of the date of the report, two days later, the company was preparing to run the liner on the well.
The Cosmopolitan unit produced 49,653 barrels of oil in 2016 from a previously drilled well and produced 28,136
barrels of oil during the first half of 2017, according to the AOGCC. Cumulative oil production through June 2017 was 111,293 barrels. The cumulative total includes a previous pilot project by Pioneer Natural Resources Inc.
2018 plans
In announcing plans to suspend drilling at Cosmopolitan, BlueCrest President and CEO Benjamin Johnson said, “We’re going to finish drilling what we’re doing right now. It’s not an immediate shutdown.” The statement suggested that the company would finish work on the H-14 well and H-14L lateral but defer the H-12 well and H-12L lateral.
In its plan of development, BlueCrest said it would drill at least one well at Cosmopolitan in 2018 and listed the H-16 Upper Lateral as the most likely candidate at the moment.
The company said that it had already received a permit from the Alaska Oil and Gas Conservation Commission to drill the H-12 development well but needed to revise the permit to accommodate changes to its completion package. As of late September 2017, the AOGCC had yet to include the H-12 drilling permit on its weekly well report.
In June, the AOGCC issued a spacing exemption, allowing BlueCrest to drill the H-12 well within the same governmental section as the H-14 and H-16 wells and their laterals.
BlueCrest intends to request an AOGCC drilling permit for the H-16 Upper Lateral and H16 Exploratory Lateral either later this year or early next year, according to the plan.
As currently envisioned, the H-16 Upper Lateral would target the Starichkof. Pennzoil discovered Cosmopolitan in 1967 with the Starichkof State No. 1 well. Phillips confirmed the discovery and also discovered Hemlock oil with the Hansen No. 1 well in 2001.
The state Division of Oil and Gas recently approved the formation of a participating area at the Cosmopolitan unit that includes both the Starichkof sands and the Hemlock.
Future plans
Even if drilling activities proceed this year as currently planned, they would be a reduction of the pace of activity BlueCrest might prefer under ideal economic conditions.
The company intended the five-well program to be the first stage in a full development program that would potentially require 20 wells over a seven-year timeline. The facilities at the Cosmopolitan unit are capable of handling as much as 10,000 barrels per day.
“This project has a tremendous amount of value. It offers the opportunity for years and years of good, viable drilling to develop the hundreds of millions of barrels of oil in the ground,” Johnson told Petroleum News in early August 2017. “But we relied on the state’s commitment that they were going to participate in the funding in the project.”
The Cosmopolitan development project is occurring on a 38-acre parcel, which is much larger than the existing pad and facility and could easily accommodate expansion.
Earlier this year, BlueCrest contracted lease ADL 391902 from the unit, which was one of the three leases offered in a special sale in June 2011 because of their prospectivity.
History
Pennzoil discovered the Cosmopolitan oil field off of Anchor Point in 1967 with the Starichkof State No. 1 discovery well and the down-dip Starichkof State Unit No. 1 well.
ARCO Alaska acquired the prospect in the 1990s, and Phillips Inc. inherited the leases after it acquired ARCO’s producing assets in Alaska in early 2000. By the turn of the century, improvements in drilling technologies allowed Phillips to target the offshore prospect from an onshore pad, some 2.5 miles away, using directional wells. The company drilled the Hansen No. 1 well in 2001, confirming the presence of oil in the Starichkof sands and discovering productive sands in the deeper Hemlock formation.
In 2003, after a merger, ConocoPhillips Alaska Inc. drilled the Hansen No. 1A sidetrack of the original well to target the Starichkof and the Hemlock reservoirs. A subsequent flow test produced 1,000 barrels of oil per day and 14,851 cumulative barrels.
ConocoPhillips partnered with Pioneer Natural Resources in 2005 on a joint 3-D seismic program. After the companies dissolved their partnership, Pioneer acquired ConocoPhillips’ interest and became operator of the field. Even though Pioneer was nervous about being so far from existing infrastructure, the promise of a resource estimated in the range of 30 million to 100 million barrels convinced the company to drill Hansen No. 1A-L1, a “long-reach undulating lateral” off of the sidetrack, in 2007.
Pioneer fracture stimulated an interval at Hansen No.1A-L1 in 2010. Under a pilot trucking project, the company produced more than 33,000 barrels from the field.
Pioneer soured on the project in early 2011. The company terminated the unit and relinquished all its leases except the two that were held by wells, which it sold to BlueCrest and its operating partner Buccaneer Energy Ltd. Apache Alaska Corp. bought the remaining leases but later sold them to the Buccaneer and BlueCrest partnership.
After drilling the Cosmopolitan No. 1 well, Buccaneer announced previously unknown oil-bearing intervals, and some gas production, too, but postponed a “more extensive flow test.”
Before it could drill a follow-up well, Buccaneer sold its minority stake in the Cosmopolitan prospect to BlueCrest in an attempt to improve its financial situation by selling off some of its varied Alaska assets. Soon after, Buccaneer filed for bankruptcy.
