Successful Slope season stirs optimism at DNR
Alaska’s top resource managers believe a successful exploration season could signal the dawn of a renaissance on the North Slope.
Department of Natural Resources Commissioner Andy Mack said that ConocoPhillips going “six-for-six” and finding commercial quantities of oil in all of the exploration wells it drilled last winter is not only encouraging for the company, but for the long-term future of the state as well.
“I think what we see is the success rate of drilling wells in the Arctic is really high based on modern technology, really good seismic data, the fact that they’re starting to hone in on the Nanushuk formation. It’s incredibly good news for Alaska,” Mack emphasized in an interview.
He pointed specifically to the Putu-2 well drilled near the Native Village of Nuiqsut as strong evidence that those technologies can be combined with targeted measures to reduce the above-ground impacts of exploratory drilling to result in the ability to search for and produce oil from areas that otherwise would face resistance for one reason or another.
The Putu-2 well was spudded in February about three miles northeast of Nuiqsut, which sits on the edge of the Colville River delta, and is on the western edge of established Slope oil infrastructure. The area is also just south of the highly prospective Pikka Unit that Armstrong Energy is set to transfer to Papua New Guinea-based Oil Search in June. Spanish oil and gas major Repsol also holds a 49 percent stake in Pikka, according to the state Division of Oil and Gas.
Armstrong estimates the Pikka Unit holds roughly 1.2 billion barrels of recoverable oil and could produce upwards of 120,000 barrels of oil per day once fully developed from the shallow and conventional but underexplored Nanushuk oil formation.
A development plan for Pikka is currently being reviewed by the U.S. Army Corps of Engineers through the environmental impact statement process. First oil from Pikka is tentatively scheduled for 2023.
“It’s hard to overestimate the value of what we see in the Pikka Unit specifically, in the Colville (area) generally, in the NPR-A, and they were able to drill those wells fairly close to the Village of Nuiqsut,” Mack said. “They did so with the support of the borough, with the support of the community — and we understand that’s not 100 percent — but it was a very safe operation and we think it will open the door to more development and similar operations like the one that we saw this winter.”
ConocoPhillips first planned to drill the Putu well in early 2017. That exploration plan was a driving force behind Mack overturning his predecessor’s decision and transferring all 9,100 acres in and around Nuiqsut, and once part of the now defunct Tofkat Unit, from the small independent Brooks Range Petroleum Corp. to ConocoPhillips.
However, those plans caught the attention of Nuiqsut residents, who became concerned that, among other things, exhaust from a traditionally diesel-powered drilling rig, which would be running continuously for more than two months, would ride the prevailing winds into the community.
Kuukpik Corp. is the Native village corporation for Nuiqsut and holds title to about 147,000 acres on the Slope. It jointly holds surface rights along with the state to the Putu acreage, which the Department of Natural Resources awarded to ConocoPhillips in November 2016.
The company has also taken on the role of being a public voice for the community of about 400 residents that it answers to.
While a relatively small area in North Slope terms, the acreage around Nuiqsut is seen as a potentially rich piece of property given it is adjacent to the Pikka Unit as well as ConocoPhillips’ established Colville River Unit just to the north. ConocoPhillips held the acreage in the early 2000s but had to give it back to the state after failing to meet drilling requirements.
Brooks Range also held the leases for years but was unable to secure an access agreement with Kuukpik, according to documents previously submitted to the state.
ConocoPhillips Alaska leaders went as far as to state publicly even before drilling commenced that the Putu prospect could someday produce 20,000 barrels per day, a signal of confidence from the usually conservative, publicly traded oil company. Similar estimates were applied to the Stony Hill well, which the company also drilled last winter to the south of Nuiqsut.
ConocoPhillips cited the concerns coming out of Nuiqsut as its reasons for deferring the exploration program, a move DNR officials were not happy with because the acreage was awarded to the company on the premise it would drill quickly.
Mack eventually agreed to allow ConocoPhillips to keep the leases in August 2017 as long as the company committed to drill the Putu well when it did and pay the state up to $7 million in two installments by August 2020 if the decision is made to bring the area into production.
Nuiqsut residents and Kuukpik Corp. focused their requirements on making the drilling as inconspicuous as possible.
The drill site was moved about a half-mile farther from the village than initially planned, along with numerous other impact mitigation measures.
The drilling rig, owned by Kuukpik, was electrified instead of diesel-fired. It was powered by six 975-horsepower, low-emissions diesel generators set about a mile north of the ice drilling pad.
Exhaust scrubbers installed on the generators make them as much as 90 percent cleaner than the traditional drill rigs by capturing much of the sulfur and other particulate matter found in diesel exhaust before it is emitted, according to Kuukpik CEO Lanston Chinn.
Multiple sensor stations monitoring for air, water and noise pollution originating from the Putu pad were also installed around Nuiqsut, in addition to other efforts aimed at reclamation procedures and lessening the impacts of gas flaring.
Chinn said prior to the drilling that he believed the mitigation measures set a new standard for exploratory drilling, if not Slope-wide, at least on Kuukpik land near Nuiqsut.
“They did a great job of executing the plan,” Mack said of ConocoPhillips’ work at Putu.
Chinn concurred in a brief interview after the drilling was complete, noting, “There weren’t really any complaints to speak of” coming from Nuiqsut residents.
He said further drilling proposals to delineate the Nanushuk formation in the area would be handled on a case-by-case basis.
ConocoPhillips has until Aug. 15 to decide whether or not to make a $3 million lease bid-replacement payment to DNR in accordance with Mack’s August 2017 ruling.
Mack said the company has not yet made the payment, “but we have every reason to believe from the announcements that we’ve had and heard and our observations that what we’ve proposed has worked.”
The $3 million payment equates to a lease sale bid of roughly $320 per acre for the area known to be highly prospective. ConocoPhillips spent up to $111 per acre to win leases in the same general area in the state’s December 2016 North Slope sealed-bid lease sale.
However, that payment would only allow the company to keep the area until 2020 and would also commit ConocoPhillips to drilling another well into the Nanushuk within the next two years. Further, the company has until Aug. 14, 2020, to make another $4 million bid-replacement payment if it wants to keep the acreage long-term for development.
ConocoPhillips spokeswoman Amy Burnett said via email that the results from the exploration season were promising but the company still had extensive information to review prior to making any decisions about its plans for the 2018-19 winter Slope work season.
She also noted that any development of Putu could be done with directional drilling from gravel pads farther away from the village.
Mack said state officials would also keep an open dialogue with Nuiqsut residents about what can be done to ensure development around their village does not disrupt their way of life.
“What we’re seeing is companies are better than ever at executing extended reach drilling and the actual production facility for the same area that was explored this winter — we have more flexibility, Mack said.
“We’re going to continue to have that discussion about subsistence and quality of life and the things that are happening in that village. What I would envision happening is when (ConocoPhillips) gets to the production phase they’re going to be able to place permanent facilities that will not be as close as the exploration project this winter and still effectively produce.”
Chinn said it is premature to speculate about permanent Putu development and Kuukpik leaders would discuss the relevant issues with ConocoPhillips when the time comes.
More success in NPR-A
While the apparent success at Putu is a win for the state given the complex history of exploration challenges in the area, ConocoPhillips also drilled three wells to the west, in the National-Petroleum Reserve-Alaska.
Those wells were drilled to better delineate its Willow discovery — another Nanushuk prospect — which was first announced in January 2017.
Preliminary estimates from the company put Willow at about 300 million barrels of recoverable oil, with production potential reaching 100,000 barrels per day.
Alaska oil experts believe the Nanushuk formation, which for decades hid in plain sight, is largely a western Slope phenomenon; it quickly peters out to the east of the Colville Delta.
However, 3-D seismic data indicates the oil-bearing formation could be prolific in the NPR-A, leading the state officials to keep pushing the Bureau of Land Management to revise its management plan for the reserve.
Last May, while on a trip to Alaska, Interior Secretary Ryan Zinke issued an order directing the U.S. Geological Survey to update its oil and gas resource estimates for the reserve. That mean estimate, released in December, projects the NPR-A and nearby areas hold upwards of 8.8 billion barrels of oil predominantly in the previously overlooked Nanushuk formation.
The previous resource assessment done in 2010 estimated the NPR-A held just 896 million barrels of technically recoverable oil.
More than 7 billion barrels of the new oil estimate is expected to be in the northeast corner of the NPR-A, most of which was closed to oil and gas leasing by the Bureau of Land Management in the 2013 NPR-A Integrated Activity Plan. The area was put off limits to industry to protect subsistence activities and critical habitat for the Teshepuk Lake caribou herd.
Environmental groups speculated when Zinke directed the assessment that it would be used as justification to open the protected area to industry.
Mack said the Gov. Bill Walker and his administration would like to see BLM “rebalance the plan.”
“We would look forward to a conversation about really defining what areas have (oil and gas) potential in what is the northeast NPR-A and what areas need to be protected,” Mack said. “This is a petroleum reserve. We would take our lead and be listening very carefully to the North Slope Borough, for instance.”
State officials have also discussed the issue with area Native corporations and tribes, according to Mack.
“Plans are always informed by new information,” he added.
While federal land, oil and gas production from the NPR-A — expected to officially commence for the first time late this year with the startup of ConocoPhillips’ Greater Mooses Tooth-1 project — is subject to state taxes. The State of Alaska also receives half of federal royalty and lease sale revenue generated from the NPR-A.
Mack said that the administration has made its feelings clear to Zinke, but also noted the NPR-A plan is one of several things the state is advocating to Interior for just in the North Slope region.
“There’s an issue of how much we can get done in a short amount of time,” he said.
Elwood Brehmer can be reached at [email protected].