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Oil Search, Conoco team up in Alaska
Operators working together to develop huge Nanushuk oil reservoir; Oil Search still plans to divest percentage in core leases Kay Cashman Petroleum News
Oil Search Ltd.’s half year financial report and webcast on Aug. 20 carried news about its Alaska activities and plans, most significant that Oil Search (Alaska) LLC is working with ConocoPhillips to develop the North Slope’s big Nanushuk oil reservoir and that the ASX listed company is still looking at taking on a partner, aiming to retain approximately 35% across its core leases versus the 51% it currently holds.
Informally dubbed the Narwhal trend by ConocoPhillips, the Nanushuk reservoir lies west of the central North Slope, its boundaries continuing to expand with exploration by both companies.
The top oil producer in Alaska, ConocoPhillips operates the nearby Colville River (Alpine) unit and the Kuparuk River unit, as well as mostly undeveloped leases in the area, many of which are to the west in the National Petroleum Reserve Alaska (see map of entire area in the pdf version of this story).
As previously disclosed, Oil Search has revised its Pikka unit development plan. First production of approximately 30,000 barrels of oil per day is targeted for 2022, a year earlier than initially planned.
The company is “finalizing development plans associated with early production and is focused on exploring opportunities to utilize infrastructure owned by a nearby operator. The full-scale field development, with a nominal capacity of 120,000 bopd, is expected to come onstream in 2024. This revised and phased development approach will allow early learnings from development drilling to be incorporated into the full development plan, as well as generating early cashflow,” Oil Search said in its half year ending June 30 results report.
The development plan submitted in mid-July to the Alaska Department of Natural Resources’ Division of Oil and Gas indicated start-up of the 120,000 bpd facility would be in April 2023 and do not mention possible early production of 30,000 bpd (see related story on Pikka on page 1 of this issue of Petroleum News).
FEED timing According to comments made in the Aug. 20 webcast by Oil Search’s top executive in Alaska, Keiran Wulff, the company is “moving to FEED at end of this year,” FEED meaning front-end engineering and design.
He noted that Pikka has already received its most critical approval, which was the U.S. Army Corps of Engineers’ Record of Decision and permit that was issued in May and contained Oil Search changes reflecting feedback from permitting agencies and key stakeholders, in particular the residents of the nearby Native village of Nuiqsut.
Wulff said the company doesn’t need to drill more appraisal wells in the core Pikka development area, having done a “very, very comprehensive independent review,” incorporating 3D seismic and drilling results from several wells in the field.
Instead, Oil Search will be drilling two “very big potential exploration prospects” nearby during the coming winter drilling season, likely referring to Horseshoe and Grizzly, which the company has mentioned before in conjunction with next winter’s two-rig program.
In the written results, the company said the two “high quality prospects” offered “early commercialization options.”
Taking on a partner Oil Search and Repsol originally intended to take on a third major partner for Pikka and Horseshoe acreage “back-to-back with the exercise of the Armstrong option,” the company said in a June 27 statement.
“Despite not running a formal process, in late 2018/early 2019 Oil Search received strong expressions of interest from third parties, including an attractive conditional offer, to acquire an interest from the joint venture in the Pikka unit development project and adjacent leases,” Oil Search said.
The process was “suspended in early 2019 due to a change in partner views regarding the upside resource potential, following the positive results of the 2018/19 appraisal drilling and the increase in resource potential recognized in the Horseshoe area, both within the existing field extension and in newly identified Nanushuk prospects within the Horseshoe block,” Oil Search said, validating rumors and related statements from Repsol executives that the Madrid based major was interested in increasing, not decreasing its North Slope investments.
Oil Search said in June it would be “recommencing a formal divestment process” to bring in a third partner for some of its interests in its Alaska portfolio, scheduled to conclude in the first half of 2020, ahead of a final investment decision for the initial Pikka development.
This was confirmed in its Aug. 20 results and webcast, although the words “third partner” were not used.
“Preparations to divest a portion of our Alaskan portfolio are advancing well, with Oil Search aiming to retain approximately 35% across our core leases. A formal sell-down process is planned to commence late in the fourth quarter, with completion expected to occur prior to a final investment decision on the Pikka unit development, currently scheduled for mid-2020. We believe this timeframe will enhance the value of our sell-down, by incorporating the expected resource upgrade within the Pikka unit, optimized drilling information and early results from the 2019/20 winter drilling season,” the company said.
Regarding the resource upgrade, the following was said: “The results of the drilling program are presently being combined with well data from other wells drilled in the trend as well as reprocessed and merged 3D seismic data. As previously indicated, we anticipate a material resource upgrade above the acquisition case, which will be reviewed by independent experts ahead of a formal certification process in early 2020 and before the planned equity sell-down.”
Looking to ‘secure’ two rigs Other interesting Alaska news that came to light Aug. 20 included:
* “Negotiations advanced to secure two rigs capable of drilling 70% of >120 wells” per a chart in the results.
* As part of Oil Search’s new organizational structure, Wulff’s title was changed from executive general manager and Alaska president to “EVP and Alaska president,” and, Bruce Dingeman, formerly business unit executive vice present, is now chief operating officer, and continues to report to Wulff.
* Capital costs in Alaska in the first half the year were US$290-$340 million for exploration and evaluation and $450 million for exercising the “Armstrong option” for a final buyout.
* The “Repsol farm-down” to a 49% working interest in Pikka, Horseshoe and nearby leases netted Oil Search $64 million.
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