Santos seeks protection #2; CPAI comments in defense of Coyote

Kay Cashman

Petroleum News

On Sept. 6, a ConocoPhillips Alaska manager sent the Alaska Oil and Gas Conservation Commission a response to Santos' comments for the commissioners' "general awareness."

As covered in the Aug. 25 issue of Petroleum News, on Aug. 20, Oil Search (Alaska) LLC, a subsidiary of Santos Limited, filed a comment with AOGCC questioning ConocoPhillips (Alaska) Inc.'s, or CPAI's, application to establish an Area Injection Order, or AIO, and Conservation Order, or CO, for the formation of the Coyote Oil Pool that would expand the CPAI-operated Kuparuk River Unit, or KRU.

The Santos operated Quokka Unit, or QKU, overlies the same broad geologic formation identified as the Nanushuk reservoir that CPAI proposes to develop.

While Santos supports the proposed development of the Coyote Oil Pool, the company said it was "presently unable to evaluate the potential for the AIO to impact resources in the adjacent" Santos-operated Quokka Unit particularly impacts arising from injection operations.

"Given the limited production history of the Nanushuk reservoir, access to every piece of data available is particularly critical to informing our understanding of how the reservoir performs under different development strategies," Joe Balash, senior vice president, external affairs, for Santos wrote in the comment to AOGCC.

"Presently, there is data that would aid our evaluation of the AIO proposal, but it is unavailable to us for review due to an idiosyncrasy of the well classification regime," Balash wrote, saying that some producing wells were classified by CPAI as "Exploratory," which by statute allows the well information to be held confidential for at least 24 months following completion, whereas wells classified as Development or Service are subject to immediate release.

CPAI "has recently drilled several wells from the 3S pad into the Coyote Undefined Oil Pool in the Nanushuk reservoir within the KRU and is producing one or more of them, presumably into and saving and delivering oil from KRU facilities" operated by CPAI.

These wells, "the 3S-24B, 3S-701, 3S-701A, and 3S-704, were each submitted to AOGCC to be classified under 20 AAC 25.005 as Exploratory," Balash wrote.

"The Exploratory 3S-704 well was completed in March of 2023 from the KRU 3S gravel pad," which is operated by CPAI and "AOGCC records indicate the well has produced over 650,000 barrels of oil since completion. AOGCC records also indicate the Exploratory 3S-701A well has been in injection service since September of 2023 and has injected nearly two million barrels of liquid during that period, presumably in support of 3S-704 production," Balash wrote.

"As you know, well classification is significant because, amongst other things, it determines whether data submitted to the AOGCC related to the well is held confidential for a period of time or released immediately to the public," he wrote.

Allowing an operator to classify wells as Exploratory and maintain well data as confidential despite long-term production "appears contrary to the State and AOGCC's interest in maximizing the conservation of Alaska's resources and protecting the rights of all owners to recover their share of the resource," Balash wrote.

"This outcome does not appear to be a deliberate choice by the AOGCC but rather a gap in the system of regulation otherwise designed to protect these interests. Without access to the well data from the 3S-24B, 3S-701, 3S-701A and 3S-704 wells, it is not possible for Santos to evaluate the impacts to QKU from the AIO and CO for the Coyote Oil Pool."

Other than supplying to Santos the application for the AIO as required by AOGCC regulations, Balash said there have been no efforts by CPAI to coordinate with Santos on development activities across the Nanushuk Formation and jointly investigate ways to prevent waste of resources along property lines.

Given the lack of data sharing and coordination to date, Santos respectfully asked that its interests be protected by the AOGCC by including the following conditions in any CO or AIO approval for the Coyote Oil Pool: (1) restrict well locations to 1 mile from the KRU boundary; and (2) consider a voidage replacement ratio requirement to protect correlative rights across unit boundaries and avoid waste.

"Exceptions to such an order could be filed at a later date if and when additional data sharing and coordination has occurred between the unit operators," Balash wrote.

Aug. 20 pool rules hearing

Oil Search's Quokka Unit is adjacent to Kuparuk to the southwest, and CPAI told the commission in the hearing on the proposal that in addition to numerous historical penetrations of Coyote in wells targeting deeper intervals, recent focused data collection began with Oil Search's Mitquq wells in 2020, followed by a CPAI sidetrack with a vertical production test in 2022, a CPAI horizontal producer/injector pair with a dedicated pilot hole for data collection in 2023 and a CPAI horizontal producer in 2024.

CPAI was proposing to define the Coyote oil pool based on the Palm 1, an exploration well drilled in 2001 by Phillips Alaska, which found the top of the Coyote interval at 4,270 feet measured depth and the base at 5,115 feet MD.

CPAI told the commission there was an average of 40 feet of net pay in the most prospective area, with an average porosity of 23% to 24%. This was primarily a stratigraphic trap, the company said.

CPAI's conceptual development plan called for 40 wells, half producers and half injectors, with 1,300 feet inter-well spacing, with the final well count depending on an understanding of reservoir performance and facility impacts from the initial phased drilling program. Drilling will begin from the existing 3S pad, with a second pad, 3T, proposed to the northwest of 3S.

Some of the wells from the proposed 3T pad could be 25,000 feet long and CPAI said a different rig would not allow longer wells because the limit was not really the rig but the shallow depth of the formation.

As for drilling beyond what is discussed, with a program expected to begin in late 2024 and go into 2025, CPAI said additional drilling would be to the north from the proposed 3T pad and told the commission it had not to this point held discussions with offset operators.

CPAI said the Coyote oil pool has original oil in place for the proposed development area of 508 million to 646 million barrels, with an estimate of 636 million to 810 million barrels for the total pool area.

Primary recovery was expected to be less than 5% of the original oil in place, with primary plus waterflood recovery estimated to recover 20-30%.

CPAI said adding water alternating gas was being evaluated, with the amount that could add to recovery under evaluation.

In its 2024 plan of development for the KRU, filed with the Alaska Department of Natural Resources' Division of Oil and Gas in May, and covering Aug. 1 through July 31, 2025, CPAI said it planned to pursue development at Coyote -- along with Torok and West Sak -- with six wells planned at Coyote and a new drill site 3T, planned to accommodate both Torok and Coyote production.

The company said capacity would be increased at drill site 3S to accommodate Coyote production, including upgrading the water injection line, the produced oil line and the production heaters.

In discussing work completed under the 2023 POD, CPAI said one Coyote well was completed and a second would be drilled by July 31.

CPAI had also filed to expand the Kuparuk River Unit and form the Coyote participating area.

In mid-2021, parent ConocoPhillips announced the Coyote discovery east of Nuna. At the time, ConocoPhillips Alaska President Erec Isaacson said Coyote was in the Brookian topset above the Nuna Torok discovery, describing Coyote as shallow, i.e. a Nanushuk play.

CPAI speaks out

Allan said "CPAI has provided information and engaged in coordinating and knowledge sharing activities with Santos."

On June 20, "in accordance with AOGCC regulations, CPAI provided its Coyote AIO application to Santos. CPAI did not receive any feedback or questions from Santos on the AIO application."

On the afternoon of Aug. 19, the day before AOGCC's public hearing, Santos sent CPAI an email requesting the confidential well data, Allan said. CPAI had provided Santos some of the requested well data prior to its Aug. 19 request (and it is not clear why Santos re-requested it), he said in his Sept. 6 letter.

"However, in response to Santos' request, CPAI engaged in discussions with Santos regarding access to the other well data," Allan wrote. He said that "separate from the well data, CPAI and Santos have mutually engaged in information exchanges and technical knowledge sharing arrangements and workshops regarding Nanushuk reservoirs (Pikka / Narwhal and Quokka / Coyote). We expect this collaboration will continue."

Alaska law does not support Santos' requests for Coyote AIO/CO conditions, Allan wrote.

Furthermore, Allan said "Santos offers no regulatory or statutory support (or any geologic rationale) for its requested Coyote AIO/CO conditions: a one-mile setback and an unspecified voidage replacement ratio. CPAI opposes both requested conditions."

On setbacks, Allan said the law is clear.

Per Allan, 20 AAC 25.055 specifies a 500-foot setback, subject to case-by-case waiver requests for drilling within 500 feet of a property line. On voidage replacement, the "normal" ratio is 1:1 (see e.g., Nanushuk AIO 44 Conclusion 3). Both principles are ably demonstrated in the AOGCC's Aug. 21, 2024, Nanushuk Order (CO 807), which addressed Santos' Nanushuk development -- a development that is substantially similar to the Coyote development in that it occurs in the Pikka Unit and borders the Colville River Unit.

"In short, CPAI opposes Santos' Aug. 20 requests for a one-mile setback and an undefined voidage replacement ratio. CPAI, in accordance with its applications, supports Coyote AIO/CO conditions that are substantially equivalent to those ordered by AOGCC for Santos' Nanushuk development: a normal 20 AAC 25.055 500' setback, subject to case-by-case waiver requests for drilling within 500' of a property line, and a normal voidage replacement ratio of 1:1," Allan concluded.

-KAY CASHMAN