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The Explorers 2019: 88 Energy looks to drill North Slope Icewine wells
While Winx well data being evaluated and next western well might be drilled closer to Horseshoe, Stony Hill wells, Yukon Gold excitement grows Kay Cashman Petroleum News
The busiest of 88 Energy Alaska Inc.’s subsidiaries during the North Slope’s winter off-road drilling season of 2018-19 was Captivate Energy Alaska Inc. with the drilling of the Winx 1 exploration well.
The focus in the coming year, spring 2019 through spring 2020, will likely be a different 88 Energy Alaska subsidiary, Accumulate Energy Alaska Inc.
But there will be work behind the scenes at Captivate and another subsidiary, Regenerate Alaska Inc.
Accumulate is looking to drill two wells for conventional oil with a new farm-in partner at Project Icewine and is looking for a farm-in partner for a work program for Icewine’s unconventional HRZ source rock resources.
First a little background.
88 Energy Alaska is a subsidiary of Australian independent 88 Energy Ltd., a West Perth-based ASX and AIM listed firm. 88E’s Alaska arm has three fully owned subsidiaries doing business in the northernmost state - Accumulate, Captivate and Regenerate.
In its 2018 annual report released in February, 88E touted the state of Alaska’s leasing program, noting the primary term for leases was now 10 years with a 16.5% royalty. The company also spoke of recent North Slope exploration successes as more and more missed oil is found and the resultant entry of new players such as Oil Search, one of Australia’s leading oil companies.
“Bill Armstrong (who brought in Oil Search as a partner), one of North America’s most successful explorers has described the source rocks of Alaska as unbelievably rich and prolific, having generated and expulsed about 1.5 trillion barrels of oil. Yet only a small fraction of that 1.5 trillion barrels has been found, leaving vast potential remaining to be discovered. Almost all the remaining fields in Alaska are stratigraphic traps rather than anticlines and require a subtler exploration approach, which 88E is pursuing as it targets reservoirs adjacent to those same source rocks,” 88E’s Chairman Michael Evans wrote in the annual report.
88E’s top executive in Alaska for Captivate and Accumulate is Anchorage-based general manager of operations Erik Opstad, a state of Alaska certified professional geologist, who has worked the North Slope for 34 years, including a stint with BP in various roles and as a principal and general manager of Savant Alaska.
David Wall, managing director of 88 Energy Ltd, directly oversees Regenerate.
Morocco to Alaska In late 2014 and early 2015, the young Tangiers Petroleum swapped the warm waters off Morocco for Alaska’s onshore Arctic, changing its name to 88 Energy during the same period.
In November 2014, Tangiers joined forces with Burgundy Xploration, the agent and high bidder on almost 87,000 acres in the state of Alaska’s North Slope areawide lease sale that year. Tangiers took an 87.5% interest in the leases, which the partners named Project Icewine, today operated by Accumulate.
Since that time 88 has expanded Icewine to approximately 525,000 gross contiguous acres (349,108 net).
Both the Dalton Highway, providing year-round operational access, and the 800-mile trans-Alaska oil pipeline run through the leases, which lie south of the Prudhoe Bay unit.
Yukon Gold expands The company diversified its North Slope portfolio in 2017 by successfully bidding on 14,194 gross contiguous acres on state land on the eastern North Slope, adjacent to the ANWR 1002 area. The Yukon Gold Block includes an historic oil discovery, the Yukon Gold 1 exploration well. Operated by Regenerate, 88E holds a 100% working interest in this acreage.
In a state areawide lease sale in November 2018 Regenerate bid on an additional contiguous lease of about 1,920 acres, which brought its Yukon Gold position to approximately 16,114 acres.
Third block to west In June 2018, 88E picked up a third acreage block, referred to internally as its Western Block, entering into an agreement with Great Bear Petroleum Ventures II LLC (now merged with newcomer Pantheon Resources Plc) to acquire the majority working interest in four state of Alaska leases - ADL 391718, 391719, 391720 and 391721.
Also subject to the agreement was a consortium involving Captivate, Otto Energy Ltd. and Red Emperor Ltd.
The agreement included drilling the Winx 1 exploration well on a lease four miles to the east of, and adjacent to, the Horseshoe 1/1A well lease, a 2017 oil discovery by operator Armstrong Energy and partner Repsol.
Horseshoe extended the proven Nanushuk play fairway some 20 miles south of the Pikka unit where the initial discovery had been made.
The well targeted stacked Brookian and deeper objectives.
In payment the consortium had to provide a performance bond to the state of Alaska for $3 million; drill the exploration well by May 21, 2019; free-carry Great Bear for a 10% working interest for the initial test well; cover all associated costs such as permitting, an 11-mile ice road, an ice pad, and production testing; as well as pay Great Bear $1 million.
The consortium also gave Great Bear, now Pantheon, a back-in right to acquire an additional 10% working interest prior to the spud of the initial test well by paying the pro‐rata share of all costs of the initial test well, including all associated costs, or if exercised within six months of completing the initial test well by paying 200% of the pro‐rata share of all costs. (As of April 1, 2019, that had not happened.)
Otto said it was covering 25% of the well costs to earn a 22.5% working interest in the leases. 88E’s Captivate had a 36% interest and Red Emperor 31.5%.
Winx 1 results disappointing On March 13, 2019, 88E, Otto, Red Emperor and Pantheon said in individual releases that the Winx 1 exploration well will be plugged and abandoned.
The partners said the comprehensive wireline logging program was successfully completed, but provisional petrophysical analysis of the program indicated “low oil saturations in the primary Nanushuk topset objectives.” Testing and fluid sampling indicated that “reservoir quality and fluid mobility at this location is insufficient to warrant production testing, despite encouragement from oil shows” and data acquired through logging while drilling.
There were also zones of interest in the Torok formation, and the partners said those objectives, identified on wireline logs, “similarly exhibited low oil saturations and did not flow hydrocarbons during the Modular Formation Dynamics Test … pressure testing and fluid sampling program.”
Early indications from Winx 1 were encouraging enough that a comprehensive wireline program was undertaken, “designed to fully evaluate and quantify the reservoir potential and associated shows in the Nanushuk topsets.”
Provisional results of the wireline program indicated “low oil saturations in the Nanushuk topsets not conducive to successfully flowing the formation,” they said, a conclusion borne out by the Modular Formation Dynamics Test.
“Reservoir properties appear to be compromised by dispersed clay in the matrix at Winx-1,” the partners said, noting that clay is often present in successful Nanushuk wells “but in discrete laminations with decent quality, high resistivity, oil saturated sandstones in between.”
The clay binds much of the fluid in place so it cannot flow, 88E said, and also occupies pore space within the formation. “This means that, whilst oil is present in the reservoir, there is less of it and it is not mobile.”
The Torok Channel Sequence had better reservoir performance than the Nanushuk in the Winx 1, but wireline logging showed oil saturation in the Torok zone of interest was also low and not conducive to flow.
Data acquired in the Winx 1 will be further evaluated and integrated with the Nanuq 3-D seismic to evaluate remaining prospectivity on the Western Block leases, 88Energy said.
“There are several working theories that will be assessed over the coming months, including whether there is potential for better-developed sands updip and in closer proximity to the successful Horseshoe-1/1A and Stony Hill 1 wells,” Red Emperor said in a later press release.
Activity at Icewine, conventional Accumulate is pursuing both conventional and unconventional oil resources at Icewine. The Icewine 3-D seismic survey (approximately 185 square miles) targeting conventional resources was completed in March 2018 identifying several large prospects and leads previously identified on 2-D.
In August 2018, a revision of Icewine’s conventional portfolio was announced “with multiple leads promoted to drillable prospects,” 88E said, noting a gross mean prospective resource, unrisked, of 2 billion barrels across the Icewine acreage (1.5 billion barrels net); an increase of 50% from the previous estimate.
In its year-end 2018 report, 88E said Project Icewine 3-D “seismic inversion data was substantially complete at year end with discrete three-dimensional geobodies delineated in the Schrader topset play and the Torok slope and basin floor fan play. The 3-D seismic inversion calibrated by updated rock trending models highlighted better than anticipated reservoir potential within the Torok.”
Permitting is in place to drill two exploration/appraisal wells in the winter drilling season of 2019-20.
The Project Icewine conventional portfolio farm‐out campaign started in mid-2018 with a data room opening. On March 20, 2019, 88E said it had selected a preferred bidder and negotiations with that company were underway, with the expectation of announcing a new partner by mid-2019.
“The progression of the farm-out process to the preferred bidder phase is encouraging but no deal is done until it is done,” Wall said.
Activity at Icewine, unconventional The Icewine 1 exploration well and the follow-up appraisal Icewine 2 well, both drilled from the Franklin Bluff gravel pad off the Dalton Highway, yielded positive results for unconventional oil and gas, 88E said.
Rock core from the Icewine 1 well demonstrated a “liquids rich resource play” in the HRZ, a prolific North Slope oil source rock.
88E said the partners believe Icewine 2 results supported potential economic viability of the HRZ source rock play “and are within the range of outcomes achieved at other early stage unconventional plays, despite not achieving a flow rate that is representative of the capability of the reservoir.”
Work at Icewine 2 included acquisition of a more sophisticated logging suite to complement the core obtained from Icewine 1. Results from the well “provided the requisite data to confidently design a horizontal well with a multi-stage stimulation that can access the entire height of the formation,” 88E said in July 2018.
Icewine 2 was suspended to allow future use of the wellbore, including a horizontal sidetrack with multi-stage stimulation.
Oil and gas service company Baker Hughes was then engaged, “bringing global experience from both longstanding and burgeoning unconventional plays to provide integrated geological, structural, petrophysical, and geomechanical interpretations for evaluation of the HRZ shale” source rock, 88E said.
Baker Hughes has recommended several new state-of-the-art lab tests to augment the current body of work.
88E informally launched a farm-out process in third quarter 2018 that was expected to yield announcement of a third partner to fund a work program for unconventional oil and gas.
In its March 20, 2019, update, 88E said Baker Hughes and the U.S. Geological Survey, or USGS, continue to apply advanced evaluation techniques to the HRZ shale play, including additional tests on both core and cuttings obtained from the drilling of the Icewine-1 and Icewine-2 wells.
“The company continues to receive third party interest in the HRZ shale project and anticipates being able to integrate the data from the current evaluation into a dataroom by mid-2019 in order to commence a formal farm-out process.”
Activity at Yukon Gold Yukon Gold, on state land adjacent the border of the ANWR 1002 area, includes an historic discovery well, the Yukon Gold 1 drilled by BP in 1993. Per the state of Alaska, recoverable reserves are 120 million barrels of oil. (In its 2018 annual report 88E said, “Provisional 3-D seismic mapping delineated 90 million barrels of oil of prospective oil resource to the company, net mean unrisked.”)
In March 2018 Regenerate awarded a seismic contract to SAExploration to acquire 100km2 (roughly 39 square miles) of 3-D seismic, over the Yukon Gold leases. The fast-tracked seismic acquisition was completed April 1, 2018.
The data allowed an assessment of the volumetric potential of the untapped Yukon Gold oil discovery, as well as the broader lease position.
Processing and mapping were done to assess the resource associated with three sand bodies. The largest of these was the Cascade prospect, which 88E said contained approximately 92% of the “preliminary mapped resource” on the Yukon leases. The up-dip portion of the prospect was clearly identified as a channelized feature and is likely to contain thicker sands of higher quality, 88E said.
Cascade was “interpreted to have been intersected in a down-dip distal location by the vintage Yukon Gold 1 oil discovery well.” That well also “discovered two oil saturated sands in the Canning formation with porosities exceeding 18%,” 88E said, noting a Brookian turbidite fan play, with additional prospectivity mapped with 3-D seismic within the Staines tongue topset play.
Exciting news for Yukon Gold
“Up until the recent commissioning of infrastructure at the nearby Point Thomson gas/condensate/oil field in 2016 (operated by ExxonMobil), an accumulation of this size and location would have been considered stranded,” 88E said of the Yukon Gold discovery. “Internal modelling suggests that break‐even development price is now less than $40 a barrel.”
In-house evaluation of Yukon Gold leases continued through 2018.
On March 20, 2019, 88E said, “Final processing of the Yukon 3-D seismic is now complete, with interpretation and resource valuation currently underway on the inversion product.”
Some of the most exciting news for Yukon Gold was Jade Energy’s planned Sourdough field 2019-20 well under a farm-in agreement with Point Thomson operator ExxonMobil (see Jade story in this issue).
Sourdough is a 100-million-barrel discovery drilled by BP in the mid-1990s before a pipeline system was in place to connect it to the 800-mile start of the trans-Alaska oil pipeline.
Less than 10 miles northeast of Yukon Gold, Sourdough will likely be developed and connected to the Point Thomson unit pipeline, bringing the eastern North Slope pipeline system to Yukon Gold’s backyard.
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