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Pikka ready for FID
Santos says little, Alaska project continues to advance, record free cash
Kay Cashman Petroleum News
In Santos’ second quarter report for the period ending June 30, the company said the “Pikka Phase 1 project in Alaska has received all major environmental and regulatory approvals and has sufficiently advanced FEED work to achieve FID-ready status, as planned.” (FEED stands for front end engineering and design and FID for final investment decision.)
When asked whether Santos or (its subsidiary) Oil Search Alaska is currently working with any potential investors interested in buying into Pikka and/or any other Alaska assets, a Santos media representative said there was no further information available at this time.
Still, Santos has stayed on track with Pikka, which is west of the central North Slope, meeting its mid-year FID target, while its Alaska operator Oil Search Alaska is on the ground working on Phase 1 of the Pikka project, which is expected to bring 80,000 barrels of oil online shortly after startup in 2025.
That much oil represents a 25% increase in flow through the 800-mile trans-Alaska pipeline system.
Pikka Phase 1 involves a single drill site; subsequent phases are expected to add two more drill sites and increase output to a maximum of 160,000 bpd.
The development is expected to come online at a price of less than $40 a barrel and a target development IRR of less than 20%.
Independently verified 2C gross reserves for Pikka 1 are 413 million barrels; with total Pikka 2C gross resource at 768 million barrels, and the material resource at 968 million barrels.
More and more oil But those numbers are for the Pikka unit only and not the recent discoveries close to it that could be brought online with Pikka, such as the Mitquq 1 and its sidetrack Mitquq 1 ST1, which were drilled in early 2020.
After discovering oil in the primary Nanushuk reservoir, the Mitquq 1 well was drilled into the secondary Alpine C formation where it encountered 52 feet of net hydrocarbon pay, comprising 31 feet of net oil pay and 21 feet of net gas pay. A comprehensive suite of wireline logs, pressure data and hydrocarbon samples were collected prior to the wellbore being plugged back to allow for the drilling of a sidetrack, Mitquq 1 ST1, to appraise the Mitquq 1 Nanushuk discovery.
The sidetrack intersected the Nanushuk and encountered approximately 172 feet of net hydrocarbon pay, including a 29-foot gas cap.
The wellbore was logged and cored and in late March a flow test was conducted with a single-stage stimulation. The test included a cleanup, flow period and a six-day pressure build-up, with the well achieving a stabilized rate of 1,730 bpd.
Located 5.6 miles east of the proposed processing facility for the Pikka development, Oil Search Alaska (prior to Santos merger) said it saw the Mitquq prospect as a “high value tieback” to future Pikka infrastructure.
3,520 barrels of oil per day, And then there’s the Stirrup 1 exploration well drilled by Oil Search Alaska in early 2020. It had one of the highest flow rates of any Nanushuk single-stage stimulation of a vertical well on the North Slope to date, the company said April 21, 2020.
Approximately seven and a half miles west of the company’s 2017 Horseshoe 1 discovery well and almost 28 miles southwest of the proposed Pikka development, the Stirrup 1 well successfully penetrated the Nanushuk reservoir and encountered an oil column with net pay of 75 feet.
The wellbore was cored, perforated through a single-stage simulation and shut-in for six days to enable pressure build-up prior to testing in which Stirrup flowed at a stabilized rate of 3,520 barrels of oil per day, exceeding company expectations.
Stirrup is a direct analogue to the Horseshoe 1 Nanushuk discovery and as such the company said the new find could underpin a possible standalone Horseshoe development that would follow Pikka development. Or it could represent a low-cost tie-back to Pikka.
Santos said in mid-February In its mid-February presentation, Santos’ guidance for 2022 said “an average oil price of approximately US$65 per barrel in 2022” would generate sufficient free cash flow to fund forecast major growth projects capital expenditure, likely including the contingent amount” for Pikka.
In fact, the average realized oil price in the first half of 2022 proved to be US$116.28, per the company’s second quarter report.
And Santos’ free cash flow set a record high in 2022, delivering first half sales revenue of US$3.8 billion, up 85%, and record free cash flow of US$1.7 billion, up 199% on the corresponding period.
In her part of an earlier Santos presentation the company’s chief financial officer, Anthea McKinnell, said the company’s “balance sheet is ready to fund growth” and that the needed $400 million to fund 2022 capex for Pikka and Dorado could be added at an average $65 per barrel oil price.
Alaska office fully staffed In April 2020 Oil Search Alaska’s employees and direct contractors totaled 151.
Petroleum News sources close to the action say that the local office continues to be fully staffed with around 150 people. The top man in Alaska is Bruce Dingeman.
Other sources also indicated that Santos is still interested in selling down a 15% interest in Pikka, as is Repsol, the 49% partner in the project and in many other Oil Search operated leases on the North Slope.
The Australian’s Data Room on May 22 reported that major oil and gas producers from North America were believed to be lining up in the sale process for a stake in Pikka: “In the process of the Moelis-advised competition are understood to be major US energy heavyweights like ConocoPhillips, Exxon and Chevron.”
Repsol behind Pikka Josu Jon Imaz, who has been chief executive officer of Repsol since April 2014, has often voiced alarm over the market's readiness to drop fossil fuels.
At the World Petroleum Congress in December, he said families are being hurt by energy bills as high prices affect households during a strong global push to move away from fossil fuels.
A reliable supply of oil and natural gas must be guaranteed by energy companies as demand will continue in the coming years, Imaz said.
At CERAWeek in March, the Repsol CEO said: “We can’t sustain this level of prices. We need an (energy) transition, not a destruction.”
That said, Imaz has led the company’s transformation process, establishing Repsol as a global multi-energy company, a major player in the Spanish electricity and gas market, and a leader in the development of sustainable mobility solutions that boasts one of the most efficient refining systems in Europe.
Under his leadership, Repsol has accelerated its assets’ decarbonization process, becoming the first company to commit to reaching net zero emissions by 2050.
In regard to Pikka and the company’s assets in Alaska, in an interview with Energy Intelligence he was asked how the Pikka project fit with Repsol’s strategy to be low cost, low carbon and shorter cycle.
“The North Slope,” Imaz responded, “is an area where infrastructure, facilities, pipelines are (already) there. … It’s light oil so there are fewer emissions in terms of carbon footprint than some other oils in the world. And the emissions footprint of our Alaska asset is going to be around 75% less than the current coverage for North Slope operations” (based on the Wood Mackenzie Emissions Benchmarking Tool).
Imaz said the Pikka project is “low cost and low greenhouse emission intensity, consistent with our commitment to align the company’s portfolio with the objectives of the Paris Agreement. And, as I said before, a part of the energy demand in 20 years is going to be covered by oil. And this oil has to be an oil of low break-even, light oil, with the lowest possible footprint in carbon emission terms and avoiding, in some way, the new frontier areas. … Alaska is fitting with this view.”
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