Pioneer closes sale to Caelus, Nuna development on tap

More new oil projects are planned for the North Slope spurred by the state’s reform of its oil production tax, according to a new pair of entrants to Alaska.

A new development is that Caelus Energy, new owner of the former Pioneer Natural Resources producing assets in Alaska, plans to begin construction next winter on the Nuna project, an undeveloped oil deposit near the producing Oooguruk field now owned by Caelus, company officials said.

Caelus and its investment partner, Apollo Global Management, completed the acquisition of Pioneer’s 70 percent share of Oooguruk and other assets in Alaska April 15, Caelus CEO James Musselman said.

Caelus and Apollo paid $300 million in cash for Pioneer’s assets. Eni Oil and Gas retains its 30 percent share of Oooguruk but is not involved in Nuna, which is 100 percent owned by Caelus.

Musselman said Caelus and Apollo have been looking at the North Slope for some time, attracted by the geologic prospectivity of the region. What finally motivated the partners to jump into Alaska was the state’s move in 2013 to reform its oil and gas production tax, however, he said.

“We will begin placing gravel for Nuna’s production pad this winter and we are planning to have first production by the third quarter of 2016,” Musselman said in an interview with the Journal.

Preliminary estimates are that Nuna can produce 15,000 to 20,000 barrels per day, or b/d, he said. Oooguruk is now producing about 15,000 b/d in gross production, although that is shared with Eni.

A 31-well drilling program is planned for Nuna, with an estimated overall capital cost of $1.5 to $2 billion, he said. There are also tentative plans for a second production pad at Nuna.

Meanwhile, Alaska’s Department of Natural Resources has transferred special reduced royalty arrangements for Oooguruk that were negotiated with Pioneer to Caelus, and Musselman confirmed that discussions are underway with state officials on similar royalty arrangements for Nuna.

That, plus other special tax incentives the state offers, will make Nuna economic to develop, he said. Musselman paid special compliments to the DNR and its staff for helping facilitate the entry of Caelus and Apollo, and to Gov. Sean Parnell for his encouragement.

Caelus officials couldn’t comment on the oil quality at Nuna but previous wells drilled by other companies in the same area have yielded oil with quality ranging from 19 to 24 API gravity, according to data on file with the Alaska Oil and Gas Conservation Commission.

In a related development, Caelus officials also said that Pioneer had very good results this spring with large hydraulic fracturing of four new production wells at Oooguruk.

Pat Foley, who headed Pioneer’s operation in Alaska and who will continue under Caelus, said one of the wells peaked at 7,000 b/d in production tests after the fracturing but that production on all four is being “choked back” to 2,500 b/d to 3,000 b/d for reservoir management reasons.

That is about double what Oooguruk production wells have been averaging, he said.

Based on those results, Musselman said Caelus will look at applying fracturing to some of the existing Oooguruk wells where production has decreased.

Alaska Commissioner of Natural Resources Joe Balash said the entry of a private equity investor like Apollo into the North Slope oil and gas projects is significant.

Equity firms are reported to have invested already in projects on the Slope, but have not made the information public.

“That this was done in a very public way is a significant signal of confidence,” Balash said.

Apollo had assets under management of approximately $161 billion as of December 31, 2013, in private equity, credit and real estate funds invested across a core group of industries, including energy, according to the April 15 announcement by Caelus and Apollo.

Nuna is one of several new small- to medium-sized projects now under development on the Slope. April 24, the state development corporation, the Alaska Industrial Development and Export Authority, approved a $50 million state participation with Brooks Range Petroleum, another Alaska independent, in development of the Mustang field, which will begin producing in late 2015 and will peak at 15,000 b/d.

ConocoPhillips, one of the large companies operating on the slope, also has the new CD-5 project under construction near the Alpine field, which will produce 16,000 b/d at peak, and a new drill-site in the Kuparuk River field, Drill Site 2-S, which will produce about 8,000 b/d.

BP also has new projects underway in the large Prudhoe Bay field including assessment of a $3 billion new development in the west end of the field.

11/21/2016 - 11:47am