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Explorers magazine preview: Oil Search leads Slope renaissance; doing appraisal wells, 3-D seismic
Ahead three Horseshoe appraisal wells, Grizzly prospect evaluation, 3-D seismic to west and on eastern North Slope leases
Kay Cashman Petroleum News
In its 2018 annual results presentation on Feb. 18, 2019, Oil Search said it plans to drill three Horseshoe wells and acquire new seismic in the area in the 2019-20 winter off-road season.
The wells will help the company decide whether to build a standalone processing facility for Horseshoe or tie it back to the 120,000-barrel-a-day Pikka unit facility, expected to come online in mid-2023.
The focus of the 3-D seismic will be south of Pikka in the Horseshoe and Grizzly areas, likely seeking other geologic targets not yet encountered in drilling. Grizzly, south and east of Horseshoe, is the next in a series of oil prospects being pursued by Oil Search, the Perth-based parent of Oil Search Alaska.
Some of the other prospects named on a map in the presentation were Atlas A, Atlas B, Kachemach, Antigua, Thetis, Harrison Bay, and far to the east, the Hue Shale, which is the block Oil Search partner Armstrong Energy picked up in the November 2018 state of Alaska oil and gas lease sale under the name Lagniappe. It is not known whether any of these prospects have since been rejected by Oil Search or if any new prospects have been added since the map was created in the last quarter of 2018.
In its Feb. 18, 2019 presentation Oil Search said it expects to invest $3 billion net in Pikka development from 2019 to production in mid-2023, increasing its stake to 30-35 percent. The $3 billion net estimate represents a 35 percent equity position, per company Chief Financial Officer Stephen Gardiner.
The company said in its 2018 annual results presentation that the Brookian Nanushuk reservoir intersected in the 2018-19 Pikka B well was the thickest seen in the Alaska North Slope field to date. Information previously released by state geologists and field operators Oil Search and ConocoPhillips about regional upper Cretaceous Nanushuk reservoirs shows net thicknesses of oil-bearing sands are some 200 feet at Pikka and 40 to 70 feet further west at Willow. The Brookian is the youngest and shallowest of the petroleum bearing rock sequences on the North Slope.
Bringing in another partner Oil Search said it expanded its North Slope portfolio in 2018 with lease acquisitions covering more than 215,000 acres (see map) and confirmed that a third working interest partner will be brought into Pikka, Horseshoe and nearby leases as it acquires Armstrong’s remaining working interest.
In a Feb. 18, 2019 presentation slide, Oil Search said work was underway on the “Horseshoe area Nanushuk reservoir model finalization and well location selections,” as well as on a “seismic mega-merge reprocessing project.”
The company expects a FEED, or front-end engineering and design, commitment for the Pikka project by mid-2019, subject to appraisal and an Environmental Impact Statement, or EIS, Record of Decision from the U.S. Army Corps of Engineers.
Alpine interval at Pikka Oil Search is also reviewing Alpine reservoir targets in the Pikka unit to decide on an appraisal strategy. Several unit wells have encountered oil productive Alpine sand in excess of 95 feet thick at a depth of 6,500 feet. (The shallower Brookian Nanushuk wells appear to average 4,100-4,500 feet in depth.)
Armstrong Energy, the initial partner that put together the joint venture with Oil Search and Repsol, started the revival of North Slope exploration by successfully looking for oil pools such as the Nanushuk that had been missed or ignored by previous explorers and developers. Company founder and top executive Bill Armstrong said from the start that there were at least six intervals in Pikka wells that would eventually be tapped, the largest of which after the Nanushuk was Alpine.
The deeper Jurassic Alpine reservoir is the primary target further west in ConocoPhillips’ Colville River unit, which has been in production for approximately 20 years.
Exercising Armstrong option As of March 19, 2019, Oil Search had 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- all to the west of the central North Slope. (This Hue shale area is not shown on the map in this story. Below the Brookian reservoirs lies the Hue shale and HRZ, the source rock for Brookian oil. State geologists have said it appears the oil migrated upwards from the source rock, along the sloping strata of the Torok and into stratigraphic traps in the Nanushuk.)
Oil Search has the option until June 30, 2019, 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.
Peter Botten, managing director of Oil Search, said in the Feb. 18, 2019 presentation that the task of bringing in the third working interest partner was 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.
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.
Exploring further east In 2018 Armstrong took the partners to the eastern North Slope in their hunt for oil pools missed by previous explorers, picking up a 195,200-acre block of leases that had only been lightly explored by seismic or drilling - the map in this story dubs that block Hue Shale.
Lagniappe Alaska, formed in Alaska by an Armstrong contractor just prior to the Nov. 15 bid opening for the 2018 state areawide North Slope oil and gas sale, was the high bidder on 120 tracts, bidding an average of more than $82 an acre for a total of $14.1 million.
When Petroleum News tracked down Bill Armstrong under a layer of paperwork concealing his identity, he said the block would be aggressively explored, which was exactly what his company did when it acquired what eventually became the Oooguruk and Nikaitchuq North Slope producing fields, and what is happening at Pikka and Horseshoe. Armstrong always brings in partners with deeper pockets and a shared interest in exploration and speedy development.
In exercising its option under an area of mutual interest agreement, Oil Search took over operatorship of the Lagniappe block, purchasing a 50 percent interest from Lagniappe, a 100 percent-owned Armstrong company for approximately $8 million.
“We’re trying to continue to make the play that we discovered to the west, the Nanushuk at Pikka,” Bill Armstrong told Petroleum News Jan. 30, 2019 about the Lagniappe leases, although not naming the analogous, lookalike formation.
“It is a very subtle play; that’s why it has been hidden for so long; it doesn’t just jump out at you on seismic. … The amount of running room this concept has is just massive in Alaska. ConocoPhillips is chasing it west, which is great and we like what they are doing a lot, but going east from Pikka we also see the same thing. We’re really excited. It’s still a wildcat play. It still has risk, but it has huge potential,” he said.
“Every well that has been drilled in the surrounding area has indications of hydrocarbons. So, what little well control there is is very encouraging.”
Well control refers to the availability of data from wells to provide information about the subsurface geology and hydrocarbon potential. In other words, the availability of factual subsurface data from wells provides a level of control over subsurface models built from surface mapping and seismic data.
In addition to the Nanushuk lookalikes, Armstrong sees “a whole other idea that has never been chased that we like but is nothing like the Nanushuk. Yet, it too is exciting and wild and wide open,” he said.
“There are so many zones, so many objectives out there on the North Slope that could work. You chase one thing and find another. So many discoveries have been found by accident.”
For example, “we were pursing the Alpine and Kuparuk at Pikka and the Nanushuk was just a secondary objective, yet it was the one that worked the best - although the Kuparuk and Alpine worked too,” Armstrong said.
“It’s hard to believe that in this day and age … a play like this - Nanushuk - could lie essentially unexplored: onshore, shallow oil, near infrastructure with massive room to run and in, of all places, the United States. Who would have guessed?”
What’s next for the eastern North Slope block? “Shoot a big 3-D. There’s not enough well control and there’s some 3-D seismic that has already been shot but we need more coverage, so next season (winter 2019/2020) we’re going to shoot a big 3-D and the season after that, we are hoping to start drilling,” he said.
Exploration lease acquisition strategy “We are delighted to be exercising our rights under the AMI,” which was entered into “to ensure that Oil Search could continue to work closely with Armstrong, which has extensive knowledge of the Alaskan North Slope with a proven and successful exploration lease acquisition strategy,” Botten said.
The Lagniappe acreage was identified in a regional study, conducted jointly by Armstrong and Oil Search in 2018, as being highly prospective for oil, he said.
“The leases … capture the entire prospective trend identified by the study, which contains two separate plays. One of the plays identified is analogous to the Pikka oil field, with similar potential materiality, while the other is also a proven and material play in the region,” he said, noting leasehold has existing 2-D and 3-D seismic data and nearby wells and pipeline infrastructure.
The potential of the area is “very exciting and, as operator, we intend to explore it systematically,” starting with reprocessing existing seismic data and then the acquisition of a new 3-D survey.
“This latest lease acquisition is part of a measured growth strategy in the region, targeting high quality, highly prospective, material value opportunities, which will position the company for a long for a long and successful future in Alaska," Botten said.
“For us, Alaska is a commitment. … We want to be here for a long period of time,” Keiran Wulff, president of Oil Search Alaska said Nov. 14, 2018.
Wulff oversees the company’s office in Alaska, which is in Anchorage in the BP building.
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