Bleeding cash, still exploring on the North Slope
It might not be a great time to be an oil company, but independents across Alaska are saying “the show must go on” through their exploration and development work this winter.
One of the newest players on the North Slope, Australia-based junior 88 Energy Ltd. announced Feb. 29 that positive results from its first well Icewine No. 1 have led the company to start a two-dimensional seismic survey this month. 88 Energy plans to drill a second, horizontal exploration well, Icewine No. 2H, this year on its leases south of Prudhoe Bay, according to a company release.
88 Energy Managing Director Dave Wall said in a statement the results from Icewine No. 1 met and exceeded expectations. The well was spudded Oct. 15.
“As a consequence of these continued good results, we have tailored our seismic acquisition to focus on mitigating risk for the next well,” Wall said.
The company is focused on shale plays in the Icewine prospect. It is estimated to hold a mean unconventional resource of 492 million barrels, according to investor reports.
Anchorage-based Great Bear Petroleum is also exploring shale prospects just north of Icewine.
88 Energy and its minority partner Burgundy Xploration of Houston began acquiring leases on the central North Slope in November 2014. The partnership will hold more than 270,000 acres of state leases about 35 miles south of Prudhoe once its 2015 lease sale awards are final, 88 Energy states.
An existing gravel road off the Dalton Highway makes the area accessible for year-round work. The lease position is also bisected by the trans-Alaska Pipeline System, providing easy access to markets should Icewine be seen through to production.
88 and Burgundy are working under the joint venture Accumulate Energy.
Wall said the 2-D seismic program will give a broader picture of the acreage and should identify any large conventional features that would be economic at lower oil prices. 88 Energy had first planned for a 3-D seismic program to follow drilling of Icewine No. 1.
While Alaska North Slope crude is currently selling for just more than $30 per barrel, it is costing producers about $46 per barrel to extract and ship to market, according to the state Department of Revenue.
The cost for Icewine No. 1 came in on budget at $16.1 million, according to 88 Energy, and was drilled by Kuukpik Drilling’s Rig 5.
Overall, the budget for both wells and the seismic program is projected at $60 million to $75 million. The State of Alaska is expected to cover upwards of 75 percent of the exploration costs through its refundable tax credit incentive program, according to 88 Energy.
To the north, Dallas-based Caelus Energy is digging into the remote
Smith Bay prospect, which holds “true billion-barrel potential,” according to the company.
Smith Bay is about 150 miles northwest of Prudhoe, far west of the developed areas of the Slope.
Alaska Division of Oil and Gas Director Corri Feige said in a Feb. 24 House Resources Committee hearing that Caelus has shifted attention from its Nuna development this winter and is currently drilling the second of two exploration wells at Smith Bay from a grounded, shallow water ice pad.
Caelus’ Nuna project is progressing on schedule to meet an October 2017 deadline for first oil agreed to in a royalty modification deal with the state, Feige said.
At its adjacent producing Oooguruk Unit, development is continuing.
“Caelus has done a lot of work recently to optimizing the frack and to optimize their recovery and increase production from those wells,” Feige said.
All of Caelus’ work on the Slope is using fracking techniques.
Oooguruk has produced about 23 million barrels since 2008.
Arctic Slope Regional Corp.’s exploration subsidiary AEX also spudded the Placer No. 3 well in late January, Feige said.
The Placer Unit just west of the large Kuparuk Field. Placer No. 3 will delineate a reservoir first explored with Placer No. 1 and No. 2 wells drilled by other companies in 2004, according to an ASRC release.
Feige said the exploration work by a range of small and mid-sized independents, on top of continued infill drilling being done by the “big three” producers reveals the strength companies still see in Slope prospects.
“I think fundamentally what this tells us is that the industry still views the resource endowment (on the Slope) and the environment of investing in Alaska as being a good place to be,” she said.
To the large producers, Feige said BP continues to be “very aggressive” at expanding and maintaining production from Prudhoe Bay, while ConocoPhillips is in the midst of drilling eight new wells at its CD5 development this year.
Production from the $1.1 billion CD5 development started ahead of schedule in October. ConocoPhillips spokeswoman Natalie Lowman said early production has met expectations, while the reservoir quality beneath part of the development exceeded expectations.
Peak production from CD5 is estimated at 16,000 barrels per day.
The $4 billion Point Thomson natural gas development led by ExxonMobil is also on schedule to meet its mid-May production deadline, Feige said. Natural gas liquids should begin flowing from the eastern Slope project to TAPS in early May, she said.
BP is a minority owner in the large Point Thomson gas field, which is a lynchpin to the Alaska LNG Project.
Elwood Brehmer can be reached at email@example.com.