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This month in history: Pioneer wants an ‘independent model’
20 years ago this month: Cheatwood visits Alaska, says Sheffield will head local office if oil found at Northwest Kuparuk prospect Kay Cashman Petroleum News
Editor’s note: This story appeared in the Feb. 16, 2003, issue of Petroleum News Alaska
Chris Cheatwood, Pioneer Natural Resources Co.’s executive vice president of worldwide exploration, was in Alaska for the first time in early February 2003, looking over his company’s operations and meeting with state officials, including the new commissioner of the Department of Natural Resources, Tom Irwin.
Pioneer officials are hoping the company’s first investment in Alaska, the Northwest Kuparuk prospect, will contain enough oil to justify a standalone processing facility. The prospect consists of 10 North Slope leases located in the shallow waters of the Beaufort Sea between Thetis Island and the Kuparuk River unit.
Cheatwood said if Northwest Kuparuk proves commercial, Pioneer will open an office in Anchorage and Ken Sheffield, currently president of Pioneer’s Canadian subsidiary in Calgary and responsible for North Slope exploration, will move to Anchorage and open an office for the company’s Alaska subsidiary, Pioneer Natural Resources Alaska Inc.
The 10th largest independent oil and gas company in the United States, Pioneer entered Alaska in October 2002 when it signed an agreement with Armstrong Resources LLC for a 70% working interest in, and operatorship of, the Kuparuk Northwest prospect. The company plans to drill three exploration wells there this winter.
When asked for an update on the project on Feb. 7, Cheatwood said, “We’re building ice roads now. We anticipate spudding our first well around Feb. 15. … Right now our people think we can drill three wells this winter. …
“We have two backup plans in case we start running short on time,” he finished, referring to drilling rigs that could be utilized to help complete drilling before the narrow window for off-road North Slope winter exploration closes.
Believes Irwin committed to shaking things up Cheatwood met with DNR Commissioner Tom Irwin and Division of Oil and Gas Director Mark Myers while in Anchorage. His prearranged 15 minute meeting landed up running 45 minutes.
“They’re both wonderful gentlemen. … They have a very positive outlook. … They left me with the impression that they’re behind us all the way. I was very encouraged by our meeting. … I can definitely tell you that Tom Irwin is committed to shaking things up,” Cheatwood said.
One of the things that Pioneer would like to see “shook up” in Alaska is the permitting process.
“I’m still overwhelmed by all the processes involved in getting a well drilled. We’re fortunate to have had Stu Gustafson involved. He knows how things work on Alaska,” Cheatwood said.
Currently under contract as vice president of operations for Armstrong Resources, the company that developed the Kuparuk Northwest prospect and owns 30% of it, Gustafson is serving as a senior adviser to Pioneer in Alaska. He was with Exxon’s Alaska exploration group from 1979 until the company closed its Alaska exploration office in 1995. During that time, in 1994, Exxon drilled Thetis Island No. 1, which the state certified as capable of producing in paying quantities.
The Thetis Island unit was terminated in May 1995 and the following year Exxon assigned its interest in the lease containing the well to Anadarko Petroleum Corp., which still holds it. That lease is adjacent to the Northwest Kuparuk prospect.
Applying fast-track model in Alaska Reducing the time it takes to bring a discovery to production is something that Pioneer is committed to, Cheatwood said.
“We’ve done some amazing things in the Gulf (of Mexico). We want to apply that model here in Alaska.”
Cheatwood listed two examples of “cycle times” his company is proud of: Canyon Express and Falcon in the deepwater Gulf of Mexico.
“We are currently non-operators at Canyon Express which is producing more than 400 million cubic feet of gas per day from 7,200 feet in the deepest part of the gulf. The subsea wells are tied back over 50 miles to a shelf platform. That discovery was made in 1998 and the first gas was in October of 2002. There are three individual fields with three different operators (BP, TotalFinaElf and Marathon) involved in this development,” Cheatwood said.
At Falcon, in 3,500 feet of water, Pioneer is the operator and 75% owner: “We made that discovery in March 2001 and we will be bringing that gas online in April of this year. It's also a subsea development tied back about 40 miles to new shelf platform. It’s producing 175 million cubic feet per day of gas,” he said.
“You see those kinds of cycle times in other parts of the country, and that’s what companies want to see in Alaska. We go in and make substantial investments in wells and leases and we want to be able to bring those prospects into production as soon as possible,” Cheatwood said.
“The independent model is to quickly turn investment into cash flow,” he added.
To the extent that Alaska laws and regulations allow, “I think you will see the same thing with our Thetis Island project. … That’s how we do things,” Cheatwood said.
Not talking about next project When asked if Pioneer was looking at other oil and gas leases in Alaska, he said, “Obviously we’re interested in more than just the one prospect, but at this time I can’t talk about what else we’re doing other than to say it’s a definite possibility.”
Cheatwood, who resides in Dallas, said he enjoyed his first trip to Alaska. “What a wonderful place. The people here have been so nice.”
From Tom Irwin’s office in midtown he could see planes taking off and landing at Merrill Field.
“Irwin’s a pilot. … I asked him how he got any work done. … It was absolutely beautiful.”
Pioneer is active in the Gulf of Mexico, Texas, Kansas, western Canada, Argentina, South Africa, Gabon and Tunisia. At the end of 2002, the company said it had proven reserves of 737 million barrels of oil equivalent - about 50% oil and 50% gas, with a reserves-to-production ratio of 18 years and an enterprise value of approximately $4.6 billion.
Bursting with optimism, the company is targeting production growth to around 165,000 barrels of oil equivalent per day in 2003 from 117,000 barrels a day at the end of the fourth quarter 2002.
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