Caelus' Nuna plan to advance with lower royalty rates
Caelus Energy’s Nuna development can move forward with lower royalties on production.
Alaska Department of Natural Resources Commissioner Joe Balash approved a 5 percent royalty rate for five Nuna leases Oct. 29.
The 5 percent rate will remain until Caelus grosses $1.25 billion from production at Nuna, the company’s projected investment cost, according to the royalty modification application.
Nuna is on an onshore Torok sand formation wholly owned by Caelus. The independent also is a 70 percent owner and operator in the nearby Oooguruk offshore island development.
Once payout is reached, the original terms will be put back in place. The original royalty terms on four of the leases call for a 30 percent net profit share and a 12.5 percent royalty. The remaining seven had a 16.7 percent royalty rate.
Caelus Alaska Senior Vice President Pat Foley said Nov. 20 that while there could be up to 100 million barrels of oil in Nuna, it would be a challenge to get it out of the ground.
“The question on Torok is what is the recoverable portion,” Foley said.
DNR justified the modification because Nuna production should provide the state with $1.4 billion in overall net present value.
Caelus agreed to purchase the Oooguruk leases from Pioneer Energy Resources in Oct. 2013. The $550 million sale was finalized in April of this year.
It applied for the royalty modification July 1. Caelus claims the modification is necessary to make recovering the oil economically feasible. The company told DNR it would not advance Nuna without the royalty adjustment, according to the approval document.
Caelus had applied for modifications to 11 leases, but because only five are anticipated to be produced, they are the five approved for royalty reduction, DNR states.
Foley said the company is working on a “super quick” timeline to develop Nuna. Gravel will be laid this winter and two large 3D seismic acquisition programs are expected as well.
First oil is tentatively scheduled for fall 2016, he said.
DNR is requiring Caelus to invest at least $260 million in Nuna facilities by March 31, 2017, as a major term of the royalty modification. The department set the same deadline for initial production or the modification will be rescinded, among other terms.
Nuna production facilities will be installed next winter and a total of 30 wells will be drilled — half production and half injection.
All of Caelus’ wells are fracked.
“We are the leading fracking company on the Slope right now,” Foley said.
The company is working to find the “sweet spot,” he said, when it comes to how much sand should be injected into fracked wells on the Slope.
Caelus is looking to expand the Oooguruk island by about 30 percent as well, he said.
Growing the gravel island should allow for 12 new well bays to reach additional resources, Foley said.
Between Nuna and Oooguruk, the company has a $500 million-plus capital budget for Alaska in 2015, he said.
Permits to expand Oooguruk have been secured from the state and North Slope Borough and discussion are ongoing with federal agencies, according to Foley.
Caelus was the largest acreage bidder on state North Slope leases, he said. Winning bids were announced Nov. 19 and the company secured 126 tracts totaling 325,000 acres. Its total bid was about $15 million.
“One thing about Caelus is we’re not going to let the grass grow under our feet; pace is everything,” Foley said. “We’re not going to be careless but we’re going to move as fast as we can.”
Elwood Brehmer can be reached at [email protected].