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State approves request for new Kuparuk River participating area
Kristen Nelson Petroleum News
The Alaska Department of Natural Resources' Division of Oil and Gas has approved a 2020 request from Kuparuk River unit operator ConocoPhillips Alaska for formation of a new West Sak participating area, 3RO, but with a smaller acreage than requested and with different terms than the company proposed for allocating costs to the net profit share leases that are part of the PA.
The division's Nov. 15 approval of the 3RO PA, the third West Sak PA at Kuparuk, signed by division Director Derek Nottingham, said ConocoPhillips applied to have some 5,729 acres included in the PA, but a smaller area, some 3,679 acres, was approved, effective May 1, 2020.
The Kuparuk River unit was formed in 1982, with an effective date of Dec. 1, 1981, and the first KRU West Sak PA was approved effective Dec. 16, 1997. That PA was expanded in 2004, 2007 and 2015. A second KRU West Sak PA, the Northeast West Sak PA, some 6 miles northwest of the existing West Sak PA, was formed in 2009, the division said, justified by lack of communication between the two areas.
In September, the most recent month for which Alaska Oil and Gas Conservation Commission production data are available, West Sak production from existing PAs and tract operations represented 20.8% of Kuparuk River production.
3RO PA The 3RO PA is in the northernmost portion of the KRU, the division said, some 3 miles northwest of the existing KRU NEWS PA. The 3RO PA abuts the Nikaitchuq unit, operated by Eni, and the Nikaitchuq Schrader Bluff PA to the north.
3RO PA development targets West Sak sands, with pool rules defined in AOGCC Conservation Order 406 C, the division said. "The areal extent of the proposed 3RO PA lies within the West Sak Oil pool boundary," with the pool rules defining "the stratigraphic limit of the pool as equivalent to the interval between 3,552 feet and 4,156 feet measured depth in the West Sak No. 1 well drilled in 1971."
Only the D sand is currently productive within the proposed 3RO PA, the division said; other West Sak sands are "of lower quality, water bearing, or contain low-gravity/high-viscosity hydrocarbons that are uneconomic to produce."
Within the proposed 3RO PA, the top of the West Sak ranges from some 3,000 feet true vertical depth in the southwest to some 4,000 feet in the northeast beneath some 1,800 feet of permafrost.
"Development will likely be limited to the upper West Sak D sands that contain good reservoir characteristics," the division said, with the D sand ranging from 20 to 30 feet thick "in two distinct lobes at the top and base of the interval."
Producers in PA area The division said ConocoPhillips completed the first West Sak producer and injector pair in the proposed 3RO PA area in 2017, with the producer "drilled with dual horizontal wellbores to maximize production from both the upper and lower lobes of the D sand." Initial production exceeded 2,500 barrels per day, settling into some 1,200 bpd in the first year.
Three additional horizontal dual lateral producers and two single horizontal injectors have been drilled in the area since 2019, with the area producing under approved tract operations.
The combined average production from the wells in January 2021 was some 3,455 bpd, the division said.
ConocoPhillips submitted a plan to drill two additional West Sak producer/injector pairs in the eastern portion of the proposed PA, but no additional wells were included in the plan the company provided for the southwestern portion of the proposed PA.
Capable of production The division said the confidential economic, geophysical, geological and engineering data which ConocoPhillips submitted "demonstrate that a portion of the acreage underlying the proposed West Sak 3RO PA is capable of producing or contributing to the production of hydrocarbons in paying quantities." This is the area where there are existing wells and where additional wells are planned.
The division said it is excluding an area of some 2,050 acres in the southwest portion of the proposed 3RO PA, which "encompasses the water-bearing fault block encountered by 3R-102 and the adjacent area for which no plans for additional development was received."
The area approved for the West Sak 3RO PA is some 3,679 acres "that have been demonstrated continuity in reservoir and hydrocarbon properties that are capable of being developed economically."
The division said that in its latest plan of development for Kuparuk, effective through July 31, 2024, ConocoPhillips made no specific mention of planned wells in the 3RO PA area but indicated it would continue to evaluate opportunities including 3R Phase 2, tentatively scheduled for 2024.
Capital access fee denied The division said it denied a request from ConocoPhillips for a capital access fee, CAF.
This issue involves the net profit share leases in the 3RO PA.
The division said NPSL regulations require that "any formula or method of allocation governing the attribution of that production or expenses must be approved by the commissioner before it may take effect," unless it is an allocation method mandated by AOGCC.
It said ConocoPhillips proposed a cost allocation method "heavily based on using values determined by the KRU's Ballot 255," created in 1997 by the KRU working interest owners, but to which the state is not a party, and has not approved the method for allocating costs for NPSL purposes.
"While these methods work for the KRU WIOs, the B255 methods applied by CPAI do not comply with the NPSL regulations." Ballot 255 "uses prior year costs and volumes to charge current year expenses," the division said, while "NPSL regulations require allocating current month costs to the current month."
The division's approval of the 3RO PA includes an attachment describing approved allocation steps for operating costs for the NPSLs in the PA.
--KRISTEN NELSON
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