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This month in history: Pioneer looks to build drilling portfolio
20 years ago this month: Dallas independent opening permanent Alaska office, has concerns about state increasing oil industry taxes Kay Cashman Petroleum News
Editor's note: This story first appeared in the June 6, 2004, issue of Petroleum News.
Alaska is one of four key exploration hot spots for Pioneer Natural Resources, Ken Sheffield told members of the Alaska Support Industry Alliance May 27, 2004. Sheffield is the president of Pioneer's Alaska subsidiary.
The Dallas-independent is opening a permanent, 15-person office in Anchorage and is looking for more North Slope drilling prospects.
Sheffield told Alliance members that could all change if the state of Alaska increases the tax burden on the oil and gas industry.
"We came to Alaska because it has a world-class petroleum system. ... It's a great place to find oil, but sometimes it's not such a great place to make money," he said.
Sheffield acknowledged the state has been "improving the regulatory environment in the last couple of years."
Nonetheless, the North Slope is challenging for independents such as Pioneer, he said.
"It's the most expensive basin in the world," Sheffield said, citing the geologic risk common in any oil province, as well as Alaska's unique situations that add to the risk, including the high cost of transporting crude oil to West Coast markets; protracted project timelines because of limited winter access; and low activity levels which reduce the number of oilfield service and supply contractors in the state and ultimately drive up costs because of a lack of competition.
The stability of the state's fiscal policy is also a concern, Sheffield said, and could change his company's enthusiasm for Alaska.
"I'm concerned about the talk of increasing taxes. It would be hard for us to move forward if there were any new taxes. The margins are too thin on the projects we're looking at."
Alaska's competition for Pioneer's investment dollars -- i.e. the company's other three key exploration hotspots -- are the Gulf of Mexico, particularly the deepwater Gulf, North Africa and West Africa, Sheffield told Alliance members.
Portfolio of drilling prospects In Alaska, Pioneer hopes to build a "portfolio" of drilling prospects: "We're not just looking to drill one to two wells per year," he said, noting the company would achieve an "economy of scale" by drilling several wells each year.
Pioneer currently has four North Slope prospects that it has either drilled or hopes to drill, including Storms, south of Prudhoe Bay where Pioneer plans to shoot 3D seismic next winter; Gwydyr Bay, north of the ConocoPhillips-operated Kuparuk field; Caribou, which is "north of Point McIntyre on trend with (BP's) Northstar" (unit); the new Oooguruk unit, which Pioneer successfully drilled the winter before last and, Sheffield said, expects to sanction for development in the fourth quarter of this year.
Goal to achieve step change One of Pioneer's goals in Alaska is to "achieve a step change in the North Slope cost structure," Sheffield said.
"In looking for big reservoirs, you're going to find small reservoirs," against which Pioneer is applying what he calls the "independent mindset," which involves "challenging existing methods."
One thing that needs to be done, Sheffield said, is to "decrease project cycle times," from the time of the lease sale until a project is in production. He believes this can be done without jeopardizing the environment.
Leveraging existing North Slope infrastructure is another way to bring down costs -- something Pioneer is looking at doing in order to bring the Oooguruk unit online.
The unit is in the shallow waters of Harrison Bay offshore the North Slope, north and west of, and contiguous with, the ConocoPhillips-operated Kuparuk River unit. Due to a farm-in executed earlier this year by operator Pioneer and partner Armstrong Oil & Gas's affiliate in Alaska, ConocoPhillips retains the right to participate in any Oooguruk project sanctioned by Pioneer and Armstrong. Pioneer executives have talked about possible production synergies with the Kuparuk unit's existing facilities versus a standalone production facility.
Pioneer to open permanent Alaska office Sheffield lent credence to the speculation that the Kuparuk facilities will be tied into the Oooguruk unit's development when he told Alliance members May 27 that Pioneer has leased half of the sixth floor of the ConocoPhillips building in downtown Anchorage. Pioneer, which opened a small, 1,000 square foot office in Anchorage at Pacific Office Center on K Street earlier this year, was expected to expand its square footage in that building.
Sheffield said the sixth floor space is in the process of being remodeled and by August will have a staff of 15, including Sheffield; Pat Foley, manager of land, commercial and regulatory affairs; Mike Dunn, manager of engineering and development; Don Bryson, manager of exploration; as well as support staff that includes two engineers and five geoscientists.
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