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This month in history: Drilling under way
20 years ago this month: Three companies drilling 2004 exploration wells on the North Slope -- ConocoPhillips, Total, Kerr-McGee
Kristen Nelson Petroleum News
Editor's note: This story first appeared in the Feb. 15, 2004, issue of Petroleum News.
Two majors and a large independent have 2004 exploration projects underway on Alaska's North Slope and expect to have the bit turning to the right on the first well before mid-February.
ConocoPhillips Alaska is building ice roads to its National Petroleum Reserve-Alaska prospects and expects to begin drilling in mid-February at a well on the western edge of Kuparuk; Total is scheduled to spud its NPR-A well mid-month; and Kerr-McGee said Feb. 9, 2004, that it expected to start the first of two offshore wells within two days.
The three companies discussed their winter exploration projects -- and what it would take to get more exploration going in Alaska -- with the Alaska Legislature's House Resources and Special Oil and Gas committees Feb. 9.
Jim Ruud, land manager for ConocoPhillips Alaska, told the committees the company will be drilling the Spark No. 4, the Scout No. 1 and the Carbon No. 1 in NPR-A and the Placer well on the western edge of Kuparuk.
ConocoPhillips is still building the ice road to the NPR-A wells, he said, with work probably halfway to two-thirds completed and drilling expected to begin later in February or early in March. The ice roads alone, at about $100,000 a mile, will cost the company "in excess of $10 million," Ruud said, with roughly 55 miles of ice road required to reach the company's NPR-A prospects. The NPR-A wells themselves "are basically in the range of a little over $10 million each." Ruud said ConocoPhillips has a 78% interest in the NPR-A work, and its partner Anadarko Petroleum has the other 22%.
Also Kuparuk well, 3-D seismic The Placer No. 1, on the western edge of the Kuparuk River field, is being drilled with the Kuparuk River unit partners, requires a 9-mile ice road and should begin drilling about mid-February. Ruud said Placer is "immediately south of a prospect we drilled a few years ago called Palm," which was a discovery and is now in production.
ConocoPhillips also plans to shoot $15 million to $20 million worth of three-dimensional seismic, with a crew working now in the Orion area on the western edge of the Prudhoe Bay field which will move west to Alpine and then to the Harrison Bay area west of the Colville River unit. If the weather holds, he said, "we should be able to shoot a full program, shoot right out into the month of May hopefully," which gives the company information to evaluate "that will set up more prospects for us to be able to drill in the future."
Total went in with rolligons Jack Bergeron, Alaska manager for Total E&P U.S.A., told the committees that while he couldn't provide specific well cost, Total will have more than $100 million invested in Alaska by the end of 2004, including seismic purchases prior to land acquisition, its 230,000 acres in NPR-A, subsequent 2D and 3D seismic acquisitions, and the well the company is drilling this year at its Caribou prospect in NPR-A.
"Exploration in Alaska is an expensive, risky business," Bergeron said, with "some of the most demanding environmental challenges anywhere." Then, he said, there are the logistics, which help make the North Slope so expensive. The company's Caribou prospect is "80-plus miles from the nearest road," which meant ice road construction would have eaten up a substantial part of a typical 100 to 110 day exploration season. So Total chose to go in with rolligons, with an average roundtrip taking some 18 to 24 hours per load, and more than 250 loads required to move the rig and components and supplies and equipment required. That's 70 miles by road from Deadhorse, he said, and then the more than 80 mile rolligon trip. An ice road was built from the old Inigok test well, where there is a 5,000 foot gravel runway, so that personnel and supplies could come in by air.
Kerr-McGee already drilling Dave Christian, vice president of land and negotiations for Kerr-McGee Oil & Gas Corp., told the committee his company expects to be starting its first well at Spy Island, offshore from the Milne Point Island, "within two days." The company will drill two directional wells from the same surface location and is looking at a total cost of $10 million to $15 million, he said.
This is a prospect developed by Armstrong Oil and Gas, and Kerr-McGee made a deal with Armstrong to drill. The arrangement with Armstrong, he said, is initially for 12,000 acres, where Kerr-McGee has taken a 70% interest and Armstrong has retained 30%. But Kerr-McGee also has rights to the remainder of the 50,000 plus acres. "You might say we have a firm agreement for the 12, plus an option to continue earning the rest of it," Christian said.
Kerr-McGee "looked at several opportunities over the last two to three years" in Alaska, he said, but either didn't see an opportunity it liked or couldn't make a deal with the owner -- "either they thought it was worth more than we did, or perhaps they had a different operational way of operating the property than we did, where it would not be a good fit."
Attracting new entrants Ruud told the committees that ConocoPhillips has been working hard to attract new entrants to Alaska, and over about the last nine months has contacted roughly 50 companies trying to interest them in coming to Alaska and investing in exploration for oil and gas. ConocoPhillips farmed out acreage it owned to Armstrong Oil and Gas last year "and Armstrong turned around and did a joint venture with a company called Pioneer Natural Resources out of Dallas, Texas." That partnership drilled three wells last year in the Oooguruk unit, Ruud said.
ConocoPhillips then farmed out additional acreage "just to the south of the Oooguruk unit" at the mouth of the Colville River to Armstrong and Pioneer. Recently ConocoPhillips farmed out acreage immediately north of the Kuparuk River unit to Armstrong, which most recently partnered with Kerr-McGee, and that acreage is "just adjacent to where Kerr McGee - (is) drilling some wells. So basically what we did is we supported their well by providing them some acreage that was on the- west flank."
Concerns of new entrants Facility access "is a big issue," Ruud said. It can be addressed up front or after a discovery has been made, when the operator knows what he has and what the flow rates are. "That's typically what's happening right now."
He said his experience working in the deepwater Gulf of Mexico has led him to believe that "facility access does not come easy, it is a challenge."
One of the challenges ConocoPhillips faces right now, he said, is to come up with a model so that they can provide a new company with enough information about facility access costs up front that the new company can run its "screening economics" and figure out whether or not they can make money.
It's not an issue for Total, Bergeron told the committee. "In our case, when you're 50 miles from the nearest facility, we have to build our own facilities."
And what would it take for the economics to make sense that far out?
Bergeron said Total needs "to find an Alpine-like discovery" which means production of some 100,000 barrels per day and reserves in the 400 million barrel range.
Kerr-McGee's Christian said they are drilling "just northwest of Milne Point, so facility sharing will be important to us."
But, he said, Kerr-McGee is "confident" that "we and the current facility owners and the pipeline owners can reach a deal that is fair" both to the owners and to Kerr-McGee.
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