Planning and permitting for Jade Energy’s 2022 winter drilling in the eastern North Slope Sourdough prospect is “on track and expected to accelerate” as ELKO International team members complete Emerald House’s (88 Energy) drilling operations at the Merlin 1 exploration well, says Erik Opstad who is 100% owner of Jade parent ELKO.
That said, one of the project’s remaining major hurdles is the fact that Sourdough development is not economic while burdened with a 40% state net profit share lease tax, a 12.5% royalty, “plus other commercial limitations currently associated with ADL 343112,” Opstad told Petroleum News March 19.
Jade is working with Sourdough stakeholders, he said, and making progress toward the mitigation of these limiting commercial issues, but there is still “some way to go.”
A net profit share lease, or NPSL, requires the lessee to pay the state a share of net profits - in addition to a traditional royalty percentage, the Alaska Department of Natural Resources’ Division of Oil and Gas said in a February presentation to the Alaska Senate Resources Committee.
Royalty payments begin with commercial production and are assessed on gross revenue, while net profit share revenue payments begin when the NPSL reaches payout stage - after exploration and development costs, with interest, are recouped.
Dunleavy’s remedy
DNR has authority to modify royalties to allow for continued or incremental production. New legislation proposed by Gov. Mike Dunleavy would extend that ability to NPSLs, potentially extending the life of a field as well as promoting the development of new fields such as Sourdough, which would result in additional royalties, net profit share, taxes, etc. that the state would not receive without the NPSL modification.
Currently, DNR thoroughly reviews and negotiates a modification package for NPSLs and then must submit a proposal to the Legislature, with legislation required for the modification to take effect - a lengthy and ponderous process.
NPSL and royalty modification applications to DNR are “reviewed by a multidisciplinary group of professionals within several sections inside the Division of Oil and Gas, mainly by the Commercial and Resource Evaluation sections, with collaboration from Leasing, Units, Royalty Audit, and Royalty Accounting,” DNR communications director Dan Saddler told Petroleum News in a March 19 email. “Current statutes also give DNR the option of procuring consulting services, at the applicant’s expense, on issues in which we don’t have in-house expertise.”
Dunleavy’s solution will allow DNR’s commissioner to have the final say, not the Legislature.
Net profit share leases were issued by the State of Alaska between the late 1970s and the early 1980s. There are currently 26 active NPSLs on the North Slope, with rates ranging from 30% to 79.59%, DNR said.
The bills and supporting information can be found here:
* HB 81 at: http://www.akleg.gov/basis/Bill/Detail/32?Root=hb%2081
* SB 61 at: http://www.akleg.gov/basis/Bill/Detail/32?Root=sb%2061
Latest plan of development
Jade is moving ahead with its first Sourdough appraisal well, Jade 1, shooting for a Feb. 15, 2022, spud date.
Activities the independent anticipated in its 2021 Sourdough plan of development (approved Dec. 14 by the Division of Oil and Gas), include the following, along with the current status of the work, per Opstad.
1. Equipment and materials mobilization by snow trail to Point Thomson in first quarter. This has been delayed, as the necessary equipment is tied up on Merlin 1 in 88 Energy’s Peregrine Project in the National Petroleum Reserve-Alaska.
2. Permitting for 2022 winter drilling. This is on track.
3. Mobilization planning to Point Thomson. This is on track.
4. Third bathymetric survey of the service pier. This is on track and expected to occur in mid-July during the open water season.
5. Service pier approach dredging. This is dependent on bathymetric survey results. Jade has a U.S. Corps of Army Engineers dredging permit in hand.
6. Rig mobilization by barge to Point Thomson. It is still expected to occur in September.
The main challenge to appraise and develop this mid-1990s BP Sourdough oil discovery, Opstad said, is that the development must be “shown to be commercial,” otherwise “no one will fund it! Economics 101!”
Slice of Point Thomson
Jade filed its third plan of development in coordination with ExxonMobil, operator of the Point Thomson unit, and other PTU lease owners, on Nov. 1. The Sourdough project is on ADL 343112’s Area F, Tract 32, which contains BP’s Sourdough oil discovery.
Area F was created by the terms of the Point Thomson Unit Settlement Agreement between ExxonMobil and the other owners. It consists of 7,647 non-adjacent acres in the northeastern and southeastern corners of the PTU.
Jade became majority owner and operator of PTU Tract 32, ADL 343112, in the southeastern portion of Area F, by agreement with ExxonMobil mid-2018.
In 1997 BP estimated the Sourdough prospect held 100 million barrels of recoverable oil, based on the results of its Sourdough 2 and 3 wells.
If developed, will be the farthest east of all North Slope producing fields.
Some of the work in the second POD was to focus on selecting additional delineation and development well locations particularly in any “expansion” areas that may be added to ADL 343112 resources through negotiations with the other PTU working interest owners.
Various 3D seismic surveys have been acquired and interpreted over Area F.
One of these was new compressive sensing imaging, or CSI, seismic 3D data from the area during the 2017-18 winter season with parameters optimized to characterize Brookian strata. The CSI 3D survey was the first of three field studies.
“On the basis of CSI 3D seismic data, we have evaluated a location for Jade 2 sited considerably to the west of Jade 1 and adjacent to the PTU airport to prove up additional resources in ADL 343112,” Opstad said Oct. 27.
“We also have focused on working up additional delineation/development well locations in ‘expansion’ areas that may be added to ADL 343112 resources.”
Opstad, who oversees Jade’s operations in Alaska and is a 50% owner in the company, is a State of Alaska certified professional geologist who has worked the North Slope for 35 years, including a stint with BP in various roles and as a principal and general manager of Savant Alaska. He currently heads up operating subsidiaries of 88 Energy in Alaska, including oversight of drilling the Merlin 1 well in Project Peregrine.
