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Sourdough in danger
Part 1 of 2: Cracks emerge between DNR, Jade, threaten Sourdough program
Kay Cashman Petroleum News
The Alaska Department of Natural Resources' Division of Oil and Gas was supportive of independent Jade Energy's efforts to drill an exploration/appraisal well into BP's mid-1990's Sourdough discovery until the division inserted default conditions in Jade's fifth plan of development -- conditions the small company had to agree to before DNR would approve the POD.
The conditions were as follows:
-- On or before July 1, 2023, Jade will provide evidence to the division that Jade has funding for the well it plans to drill in Q1/Q2 of 2024.
-- On or before Sept. 1, 2023, Jade will provide to the division a rig contract for the well planned to be drilled in 2024.
The default conditions were seen by the investor community as hostile, Jade owner Erik Opstad told Petroleum News in a recent interview.
Going back in history, Area F was created as part of Point Thomson settlement talks more than a decade ago. It brought together 7,647 acres of non-contiguous leases in the northeast and southeast corners of the unit. The Sourdough project targets the southeastern leases, known as Tract 32.
First exploration BP Exploration Alaska commissioned the Yukon Gold 3D program over 95 square miles of Area F, Tract 32 in 1994. It drilled the 12,562-foot Sourdough No. 2 well in March 1994 and the 12,475-foot Sourdough No. 3 well in March 1996. It returned with the Mammoth 3D program over 13 square miles of Area F in 1997.
Following that multi-year seismic and drilling program, BP announced a 100 million barrel discovery in 1997, but at the time there was no pipeline to the Sourdough prospect which borders the coastal plain of ANWR on the east. The Point Thomson project had yet to be developed.
BP modelled some 2,700 barrels per day by stimulating the vertical Sourdough No. 3 well. Opstad believes that a 5,000-foot horizontal completion into the Brookian reservoir would result in significantly higher production.
One of the many oddities about the Point Thomson unit was its culture of ownership.
The idea behind unitization is to encourage collaboration to better avoid disputes and duplication. But for the first 20 years of the life of Point Thomson, from the late 1970s into the late 1990s, various working interest owners worked somewhat independently.
The Sourdough prospect was perhaps the best example of that odd ownership culture: BP and Chevron USA drilled at the prospect without the participation of any other working interesting owners, including then-operator ExxonMobil.
2018 agreement Through a late 2018 agreement, ExxonMobil assigned a 62.674% working interest in Tract 32 to Jade Energy, retaining a 2% overriding royalty interest. The following summer, BP assigned its 32.326% interest in the lease to Jade, retaining a 1.03% overriding royalty interest. Those two deals gave Jade 95% working interest in Sourdough, with ConocoPhillips Alaska holding the remaining 5%. Jade eventually acquired the remaining 5% working interest in its lease from ConocoPhillips, finally giving the company 100% interest in Sourdough.
With the seismic survey completed and the working interest resolved, Jade prepared to use Nordic Rig-3 to drill the Jade No. 1 exploration well in early 2020. The approximately 12,750-foot well would penetrate "all of the prospective Brookian sand target that lay between 11,000 feet and the Hue Shale at 12,500 feet," the company said.
But the realities of getting equipment to the eastern North Slope forced Jade to delay the project into early 2021 and then delay the project again into early 2022. The Covid-19 pandemic played a huge part in this, as most North Slope services and supplies were unavailable.
Rethinking In early 2022, Jade Energy began rethinking its technical approach to the project, leading the company to significantly redesign and expand its proposed well. The company had originally planned to drill a simple pilot well at Sourdough. "Although we still needed to drill a pilot hole deeper than either existing Sourdough wells (Sourdough No. 2 and Sourdough No. 3) to evaluate potential additional reserves atop the Hue Shale, it didn't make financial sense to plug and abandon that wellbore," the company wrote in filings.
Jade instead designed a project where it would "plugback from the pilot hole TD, then complete the well as a horizontal sidetrack. - Although more expensive than an abandoned pilot hole, this plan makes better use of the capital and was quickly embraced by our investor community," the company added.
To accommodate the estimated reservoir pressures at Sourdough, Jade needed to secure a rig with blowout preventer equipment rated at 10,000 psi.
In an April 2023 interview, Opstad said, "We're working on finding a rig that can come in overland on snow roads versus ice roads, using the methods and techniques developed in the National Petroleum Reserve-Alaska over the past several drilling seasons. This approach is expected to be a lot more cost-efficient for the Sourdough project."
Response to DOR In a recent update on the Sourdough project requested by the Alaska Department of Revenue, Opstad wrote the following:
"Jade identified a suitable rig for the development project (Nordic Rig-37). Cruz Construction moved it from the west side of the Cook Inlet to the Kenai area during the summer of 2023. A Canadian third-party engineering firm subsequently evaluated the rig's condition. Results of that inspection showed that the rig's condition had materially deteriorated over the years, that the rig was stacked with little or no maintenance, and that it needed complete refurbishment and repair of several preexisting. Additionally, Nordic and Jade recognized that drilling the challenging, highly over-pressured environment at Point Thomson would require upgrades to many of the rig's systems.
"Acknowledging all of this, Jade and Nordic-Calista LLC executed a Memorandum of Understanding on July 24, 2023, intended to put Jade first in line for the 2025 drilling season and provide Nordic with an opportunity set to justify bringing a highly mobile rig with advanced 10,000 psi service capability into the Alaska market. Per the MOU, the rig was disassembled and shipped to Nisku, Canada, for refurbishment and upgrades.
"That work continues today in Nisku. Nordic has acquired a new Pipe Shed with related Pipe Handling equipment and married that to the rig. A recertified Mast is being installed. New Mud Pumps are doubling the available horsepower. The volume of the mud pit is being increased by 400 barrels. A new Top Drive is being mounted along with related Pipe Handling tools. All systems that could be exposed to reservoir pressure are being upgraded to 10,000 psi service (Choke & Riser Manifolds, BOP Stack and so forth).
"Given the current pace of work and the remaining scope, Nordic expects to have Rig-37 back in Alaska in June. Plans in place call for the rig to drill two gas storage wells for Enstar. That work will serve as "hands-on" rig commissioning before mobilizing to Deadhorse to prepare for the Jade 2025 drilling program. Any deviation from nominal specifications for the refurbished and upgraded rig will be addressed before sending the rig north. In general, the relationship between Jade and Nordic is excellent, and we will continue to work to deliver an optimal outcome for both parties."
Message from CIGSA: "CINGSA continues to negotiate with drilling contractors for the planned expansion project and has not selected Nordic-Calista or any other entity to perform that work."
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