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Oil Search beams
Thickest Nanushuk yet; $3B net new spend for Pikka; Grizzly prospect next?
Kay Cashman Petroleum News
In their 2018 annual results presentation to investors and analysts on Feb. 18, Oil Search executives said the Nanushuk reservoir encountered in this winter’s Pikka B well was the thickest to date; that the company expects to invest $3 billion in Pikka development from 2019 to production in 2023; a third working interest partner will be brought into Pikka, Horseshoe and nearby leases and Oil Search will be increasing its overall stake to 30 to 35 percent. They also said new seismic acquisition is planned for the 2019-20 season; that 2020 drilling will help them decide if Horseshoe will require a standalone processing facility or will be a tie-back to Pikka; and that the next in a series of oil prospects to be explored and possibly developed might be Grizzly, south and east of Horseshoe.
This winter Oil Search is conducting a two-well appraisal program, drilling Pikka B plus a sidetrack at the southern end of the unit and Pikka C and a sidetrack in the central part of the unit. Pikka B is designed to add contingent reserves to the 120,000 barrel-per-day Pikka development around proposed drillsite 3. Pikka C is a “proof-of-concept” development well, to reduce any uncertainty regarding the production characteristics of the Nanushuk reservoir.
Pikka B drilling “has gone very well and has intersected the thickest Nanushuk reservoir seen in the field,” Peter Botten, managing director, said. (Testing is following drilling in both wells and their sidetracks.)
Information released to date by state geologists and field operators Oil Search and ConocoPhillips about Nanushuk reservoirs discovered in the region shows net thicknesses of oil-bearing sands are some 200 feet at Pikka and 40 to 70 feet at Willow.
Next winter, Oil Search is “aiming to drill up to three wells … probably some further appraisal wells in Pikka, but also looking at how we look at and appraise the Horseshoe area to the south. We’re also reviewing the Alpine reservoir targets in the Pikka unit to determine some appraisal strategies,” he said.
The $3 billion the company estimates it will spend on Pikka development from 2019 to production in 2023 represents a 35 percent equity position, per company Chief Financial Officer Stephen Gardiner.
“We view it (as a) … fairly conservative construction cost,” he said.
Little said about Grizzly With more oil potential in the Nanushuk formation to the north and south of its Pikka development, Oil Search has said it sees Pikka as the first of a series of potential developments in the fairway between the Colville River and Kuparuk River units on the North Slope. The idea is to repeat the 120,000 barrel-per-day initial Pikka project many times over during the next 10 years, with more projects coming down behind the one that is underway, D’ Richard D’Ardenne, Oil Search senior vice president of development, said Jan. 18 (see story in Jan. 27 issue of Petroleum News).
But until now no other potential prospects were named.
Unfortunately, almost nothing more was said about the Grizzly prospect in the 2018 annual report, aside from showing it on a map (see that map in the pdf and print version of this issue of Petroleum News) and the fact it was on acreage that was newly acquired.
Third partner likely From the start in late 2017, Oil Search, which operates two of the largest North Slope oil discoveries in decades in the Pikka and Horseshoe Brookian oil prospects west of the central North Slope, has said it believes in spreading the risk among a few carefully chosen working interest partners. The ASX-listed independent is currently involved in the process of bringing in a third working interest partner.
Currently, Oil Search has a 25.5 percent interest in the Pikka unit and adjacent exploration acreage and a 37.5 percent interest in the Horseshoe block and the Hue shale.
The company has the option, exercisable until June 30, to purchase all of Armstrong and its minority partner’s remaining working interest in the Pikka unit and the Horseshoe block (another 25.5 percent and 37.5 percent respectively) as well as an additional 25.5 percent interest in adjacent exploration acreage and a 37.5 percent in the Hue shale for another $450 million. (The initial buy-in was $400 million.).
Repsol continues to hold as much as a 49 percent interest in the Pikka and Horseshoe acreage acquired from Armstrong and its minority partner, depending on the lease.
Last summer 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.
Botten said in the Feb. 18 presentation that the task of bringing in the third working interest partner is 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.
“It’s not done, it’s never done until it’s done,” he noted.
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 continues to play a role in Oil Search’s exploration strategy, keeping an overriding royalty interest in the leases it sells.
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