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The Explorers 2019: Oil Search leads North Slope renaissance Tackles largest Alaska discovery in decades, ahead 3 more Horseshoe wells, Grizzly prospect evaluation, new exploration block to east Kay Cashman Petroleum News
The biggest news to come out of Oil Search just prior to this edition of Explorers magazine going into production on April 4, 2019, was a final flow rate potential estimate of 3,800 barrels per day for the newly drilled Pikka B well and sidetrack.
Oil Search said Pikka B/Pikka B ST1, its first of two North Slope wells with sidetracks in the off-road winter drilling season of 2018-19, was a resounding success. The well flowed at a stabilized rate of 2,410 barrels of oil per day, its flow restricted by the capacity of the testing equipment. Based on the productivity index calculated during the final flow test, the well flow rate potential was estimated at 3,800 bpd at a flowing well head pressure of 50 psi.
The Pikka B was spud Jan. 23 at the southern end of the Pikka unit, its target the Cretaceous Brookian Nanushuk formation. Its objective was to assist defining potential resource volumes and reservoir deliverability in the unit.
Challenge with Pikka C The objective of the second well, the Pikka C/Pikka C ST1, in the central part of the unit was to reduce uncertainty on well deliverability.
During March, logging-while-drilling data was successfully acquired over Pikka C ST1. A flow test program began on March 14, including testing of six stimulation stages within the 3,800-foot-long horizontal section.
Mechanical problems with the test equipment delayed starting of the test and down-hole blockages restricted flow rates and the ability to clean the well out properly.
Despite the down-hole restrictions, stabilized rates of more than 860 bpd were established at 800 psi flowing bottom-hole pressure, with higher peak rates recorded during unloading the well. In addition, modeling of the geological properties recorded in the well indicate the potential for much higher flow rates than observed.
While unlikely to be indicative of the full potential of the well, Oil Search said the test data, combined with the comprehensive data suite acquired, would be fully evaluated and integrated into the forward planning ahead of the FEED decision for the first Pikka unit development project.
Oil Search had previously said it expected a FEED, or front-end engineering and design, commitment for the Pikka project by mid-2019, subject to an Environmental Impact Statement, or EIS, Record of Decision from the U.S. Army Corps of Engineers.
Three more Horseshoe wells In its 2018 annual results presentation on Feb. 18, 2019, Oil Search said it planned to drill three Horseshoe wells and acquire new 3-D seismic in the area in the 2019-20 winter off-road season.
The wells would help the company decide whether to build a standalone processing facility for Horseshoe or tie it back to the 120,000-barrel-a-day Pikka unit facility, expected to come online in mid-2023.
The focus of the new 3-D seismic would be south of Pikka in the Horseshoe and Grizzly areas, likely seeking other geologic targets not yet encountered in drilling.
A lot more prospects of interest Grizzly, south and east of Horseshoe, is the next in a series of oil prospects being pursued by Oil Search.
Some of the other prospects named on a map in the presentation were Atlas A, Atlas B, Kachemach, Antigua, Thetis, Harrison Bay, and far to the east, the Hue Shale, which was part of the block Oil Search partner Armstrong Energy picked up in the November 2018 state of Alaska oil and gas lease sale under the name Lagniappe.
As of April 4, 2019, it was not known whether any of the prospects had since been rejected by the company or if any new prospects had been added since the map was created in the last quarter of 2018.
In its Feb. 18, 2019, presentation Oil Search said it expected to invest $3 billion net in the Pikka development from 2019 to production in mid-2023, increasing its stake to 30-35%. The $3 billion net estimate represented a 35% equity position, per company Chief Financial Officer Stephen Gardiner.
How thick is thickest? In a presentation on Feb. 18, 2019, Oil Search said the Pikka B well and sidetrack had “intersected the thickest Nanushuk reservoir seen in the field.”
Information previously released by state geologists and field operators Oil Search and ConocoPhillips about regional upper Cretaceous Brookian Nanushuk reservoirs showed net thicknesses of oil-bearing sands are some 200 feet at Pikka and 40 to 70 feet farther west at Willow. The Brookian is the youngest and shallowest of the petroleum bearing rock sequences on the North Slope and its formations were generally ignored in earlier drilling across the North Slope as explorers drilled deep to find another Prudhoe Bay.
Bringing in another partner Oil Search expanded its North Slope portfolio in 2018 with lease acquisitions covering more than 215,000 acres (see map) and confirmed that a third working interest partner would be brought into Pikka, Horseshoe and nearby leases as it moved forward in acquiring Armstrong’s remaining working interest.
In one of the Feb. 18, 2019, presentation slides, Oil Search said work was underway on the “Horseshoe area Nanushuk reservoir model finalization and well location selections,” as well as on a “seismic mega-merge reprocessing project.”
Alpine interval at Pikka
Oil Search said it was reviewing Alpine reservoir targets in the Pikka unit to decide on an appraisal strategy. Several unit wells had encountered oil productive Alpine sand in excess of 95 feet thick at a depth of 6,500 feet. (The shallower Brookian Nanushuk wells appear to average 4,100-4,500 feet in depth.)
Armstrong, the initial partner that put together the joint venture with Oil Search and Repsol, started the revival of North Slope exploration by successfully looking for oil pools such as the Nanushuk that had been missed or ignored by previous explorers and developers. Company founder and top executive Bill Armstrong said from the start that there were at least six intervals in Pikka wells that would eventually be tapped, the largest of which after the Nanushuk was Alpine.
The deeper Jurassic Alpine reservoir was the primary target farther west in ConocoPhillips’ Colville River unit, which has been in production for approximately 20 years.
Exercising Armstrong option As of April 4, 2019, Oil Search had a 25.5% interest in the Pikka unit and adjacent exploration acreage and a 37.5% interest in the Horseshoe block - all to the west of the central North Slope.
Below the Brookian reservoirs lies the Hue shale and HRZ, the source rock for Brookian oil. State geologists have said it appeared the oil migrated upwards from the source rock, along the sloping strata of the Torok and into stratigraphic traps in the Nanushuk.
Oil Search has the option until June 30, 2019, to purchase all of Armstrong and its minority partner’s remaining working interest in the Pikka unit and the Horseshoe leases (another 25.5% and 37.5% respectively) as well as an additional 25.5% interest in adjacent exploration acreage for another $450 million. (The initial buy-in was $400 million.)
From state lease records it appeared that some of the lease transfers called for by the option agreement had begun in January 2019.
Repsol continued to hold as much as a 49% interest in the Pikka and Horseshoe acreage acquired from Armstrong and its minority partner, depending on the lease.
In summer 2018, Oil Search, aligning with Repsol, set up a data room and began to seriously evaluate companies that expressed interest in buying in as a working interest partner.
Peter Botten, managing director of Oil Search, said in the Feb. 18, 2019, presentation that the task of bringing in the third working interest partner was progressing smoothly with several companies on a “good short list,” but the process of identifying potential partners was not yet complete, with the data room still open.
When asked whether they were considering different partners for Pikka and Horseshoe, he said no: “We’ll progress it as a matter of urgency over the coming weeks. I think it’s pretty clear though that the optimal value is delivered out of these assets by coordinating appraisal opportunities both at Pikka and Horseshoe and beyond.”
Armstrong was expected to continue playing a role in Oil Search’s exploration strategy, keeping an overriding royalty interest in leases.
Exploring further east In 2018 Armstrong took the partners to the eastern North Slope in their hunt for oil pools missed by previous explorers, picking up a 195,200-acre block of leases south east of Prudhoe Bay that had only been lightly explored by seismic or drilling.
Lagniappe Alaska, formed in Alaska by an Armstrong contractor just prior to the Nov. 15 bid opening for the 2018 state areawide North Slope oil and gas sale, was the high bidder on the 120 eastern North Slope tracts, bidding an average of more than $82 an acre for a total of $14.1 million.
When Petroleum News tracked down Bill Armstrong under a layer of paperwork concealing his identity, he said the block would be aggressively explored, which was exactly what his company did when it acquired what eventually became the Oooguruk and Nikaitchuq North Slope producing fields, and what was happening at Pikka and Horseshoe. Armstrong has always brought in partners with deeper pockets and a shared interest in exploration and speedy development.
In exercising its option under an area of mutual interest agreement, Oil Search took over operatorship of the Lagniappe block, purchasing a 50% interest from Lagniappe, a 100% owned Armstrong company for approximately $8 million.
“We’re trying to continue to make the play that we discovered to the west, the Nanushuk at Pikka,” Bill Armstrong told Petroleum News Jan. 30, 2019, about the Lagniappe leases, although not naming the analogous, lookalike formation.
“It is a very subtle play; that’s why it has been hidden for so long; it doesn’t just jump out at you on seismic. … The amount of running room this concept has is just massive in Alaska. ConocoPhillips is chasing it west, which is great and we like what they are doing a lot, but going east from Pikka we also see the same thing. We’re really excited. It’s still a wildcat play. It still has risk, but it has huge potential,” he said.
“Every well that has been drilled in the surrounding area has indications of hydrocarbons. So, what little well control there is is very encouraging.”
Well control refers to the availability of data from wells to provide information about the subsurface geology and hydrocarbon potential. In other words, the availability of factual subsurface data from wells provides a level of control over subsurface models built from surface mapping and seismic data.
In addition to the Nanushuk lookalikes, Armstrong sees “a whole other idea that has never been chased that we like but is nothing like the Nanushuk. Yet, it too is exciting and wild and wide open,” he said.
“There are so many zones, so many objectives out there on the North Slope that could work. You chase one thing and find another. So many discoveries have been found by accident.”
For example, “we were pursing the Alpine and Kuparuk at Pikka and the Nanushuk was just a secondary objective, yet it was the one that worked the best - although the Kuparuk and Alpine worked too,” Armstrong said.
“It’s hard to believe that in this day and age … a play like this - Nanushuk - could lie essentially unexplored: onshore, shallow oil, near infrastructure with massive room to run and in, of all places, the United States. Who would have guessed?”
What’s next for the eastern North Slope block? “Shoot a big 3-D. There’s not enough well control and there’s some 3-D seismic that has already been shot but we need more coverage, so next season (winter 2019-20) we’re going to shoot a big 3-D and the season after that, we are hoping to start drilling,” he said.
Exploration lease acquisition strategy “We are delighted to be exercising our rights under the AMI (area of mutual interest agreement),” which was entered into “to ensure that Oil Search could continue to work closely with Armstrong, which has extensive knowledge of the Alaskan North Slope with a proven and successful exploration lease acquisition strategy,” Botten said.
The Lagniappe acreage was identified in a regional study, conducted jointly by Armstrong and Oil Search in 2018, as being highly prospective for oil, he said.
“The leases … capture the entire prospective trend identified by the study, which contains two separate plays. One of the plays identified is analogous to the Pikka oil field, with similar potential materiality, while the other is also a proven and material play in the region,” he said, noting leasehold had existing 2-D and 3-D seismic data and nearby wells and pipeline infrastructure.
The potential of the area “is very exciting and, as operator, we intend to explore it systematically,” starting with reprocessing existing seismic data and then the acquisition of a new 3-D survey.
“This latest lease acquisition is part of a measured growth strategy in the region, targeting high quality, highly prospective, material value opportunities, which will position the company for a long for a long and successful future in Alaska," Botten said.
“For us, Alaska is a commitment. … We want to be here for a long period of time,” Keiran Wulff, president of Oil Search Alaska said Nov. 14, 2018.
Wulff oversees the company’s office in Alaska.
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