Having completed its purchase of Pioneer Natural Resources’ Alaska assets, Caelus Energy Alaska plans to start work on the Nuna project in the Oooguruk field in the fall, Jim Musselman, Caelus president and CEO, told Petroleum News April 29. The plan is to achieve first oil from the Nuna development in the third quarter of 2016, Musselman said. Currently Caelus is engaged in engineering and other work, in preparation for starting to move gravel and conduct other site activities later this year.
“We’ve got the funds committed and we’re moving forward as quickly as we can,” Musselman said.
The project will require around $550 million in capital expenditure on new facilities and an additional expenditure of $800 million to $900 million for the drilling of wells, he said.
Torok oil
Nuna involves the development of the Torok reservoir, the shallowest of three oil-bearing reservoir systems in the Oooguruk field. The field operates from an artificial island in the nearshore, shallow, state waters of the Beaufort Sea, on the north side of the central North Slope. But the Nuna development will entail the construction of an onshore gravel well pad, drilling multiple new wells from the pad and hooking the new production into an existing onshore tie-in between Oooguruk and the neighboring Kuparuk field infrastructure.
Prior to selling its Alaska assets, Pioneer had already conducted appraisal drilling and production testing in the Torok ahead of a decision on whether to pursue the Nuna project. The company had reported a resource estimate of 75 million to 100 million barrels of oil for the Torok reservoir.
Caelus also has the necessary capital for on-going operations at Oooguruk, including the drilling of new development wells on the Oooguruk island, Musselman said. There are continuing development plans at the field, including an expansion of the Oooguruk Island.
Exploration
Musselman also said that his company plans to become an active North Slope explorer, although the company has not yet formulated any specific exploration plans.
“I don’t have anything I can tell you specifically about where our first exploration well will be,” he said. “I would like to think that we would drill two to three exploration wells per year, starting hopefully this coming winter. … That’s one of the main reasons we’re in Alaska. We do want to explore. We think there are tremendous opportunities remaining.”
Musselman said that he thinks there is the possibility of finding another major oil field in Alaska. However, a small company such as Caelus is willing to take exploration risks, searching for smaller opportunities than the major oil companies tend to be interested in, he said.
“We’re prepared to spend a significant amount of money developing not only existing discoveries and production but to explore as well,” Musselman said. “So we think there is a tremendous amount of opportunity in the state.”
Apollo partnership
Caelus is a private, limited liability company, funded by investors. In April the company announced that it had formed a strategic partnership with Apollo Global Management, an international investment company, for the funding of Caelus’ Alaska investments. Musselman told Petroleum News that Apollo, in addition to having substantial funds for capital investments, has the capability to bring in investor groups that are interested in debt financing.
“We feel very comfortable that we can do several billion dollars-worth of development and have the requisite equity and debt financing necessary to go forward with some good-sized developments on the North Slope,” Musselman said.
He said that Apollo had conducted substantial due diligence prior to forming its partnership agreement with Caelus.
“They’re good solid investors. They’re smart people,” Musselman said. “They’ve got large funds to do most anything we need. They’re sophisticated with lenders as well.”
Alaska employees
Musselman also commented that most of Pioneer’s Alaska employees have joined Caelus, thus providing continuity in the workforce operating the Alaska assets.
“We’ve extended job offers to and have acceptances back from virtually all of the employees, so we’re thrilled with that,” Musselman said. “I think the employees are thrilled because we’re embarking on a pretty ambitions work program going forward, with the continued development of the Oooguruk island and then the new development at Nuna, and then we also hope to be fairly active on the exploration front as well.”
Successful track record
The people involved in Caelus already enjoy a successful track record from several challenging oil industry ventures, Musselman said. In the 1990s Musselman and his colleagues took on a failing company called Triton Energy, eventually developing a major oil discovery offshore West Africa in record time and selling the company to Amerada Hess. Musselman subsequently founded another company, Kosmos Energy, making a discovery offshore Ghana that propelled the company into a public offering.
The developments conducted by Trident and Kosmos both involved deepwater and subsea well completions.
“We’ve done big projects in the past, so we’re not deterred or worried about our ability to do that,” Musselman said.
And the company prides itself on its demonstrated ability to move quickly when executing projects.
“We hope to bring that sort of energy to projects that we’re embarking on on the North Slope,” Musselman said.
On the other hand, Musselman said that his company does not underestimate the challenges of doing business in Alaska.
“It’s obviously a harsh environment,” he said. “The North Slope is a very particular place to work. It’s important for us to have a good, solid group of people … and we think we have that.”
Tax reform
But Musselman also expressed concern about the upcoming referendum for the repeal of the new Alaska oil production tax, saying that Alaska tax reform had encouraged his company to enter the state and that he assumes “common sense will prevail.” The progressivity of the tax rates — the manner in which the tax rate increased with oil prices — was particularly troubling in the previous tax system, he said.
In addition, the uncertainty associated with frequently changing the tax codes creates problems when making investment decisions.
“We’re getting ready to spend several billion dollars in the state, and you don’t want … the tax laws to be flipping and flopping around you when you’re spending that kind of money,” Musselman said.
And Musselman particularly commented on the encouragement his company had received from Gov. Sean Parnell and his administration during the takeover of the Pioneer assets.
“They’ve been very helpful and constructive in helping us get this transaction done,” he said.
