On Aug. 16, Santos Ltd. (51%) and its joint venture partner Repsol (49%) took a final investment decision to proceed with the US$2.6 billion Phase 1 of their Pikka development project west of Alaska’s central North Slope.
The Pikka unit operator is Santos subsidiary Oil Search (Alaska), or OSA.
First oil is expected in 2026 with a daily gross of 80,000 barrels a day, which represents a little more than 17% of the Alaska North Slope’s entire output of 457,115 barrels on Aug. 21, per the Alaska Department of Revenue.
Santos, an oil and gas producer based in Adelaide, South Australia, acquired Oil Search Ltd. and its Alaska assets in December 2021.
In a press release dated Aug. 17 in Australia (received Aug. 16 in Alaska) Santos said Phase 1 has 2P recoverable oil reserves of 397 million barrels gross. A recent Wood Mackenzie report on the entire Pikka unit puts that number at 768 million barrels.
Project status
In the winter of 2019/2020, OSA built the primary gravel infrastructure for the Pikka unit development, including the gravel roads, four gravel pads (drill site, operations pad, the processing facility pad and a tie-in pad), as well as the Miluveach River bridge.
In the Santos 2022 half year results webcast, Santos CEO Kevin Gallagher said, the Pikka project “is in good shape” and the time to move forward with development is now.
“We’ve got good contracts in place that we want to maintain. We want to maintain the cost of steel that we’ve got secured and the most interesting thing about the Alaska project is that the civil works are largely done for this project,” Gallagher said.
“So it’s really drilling. Drilling is the biggest cost in this project, the cost of the wells. And we have those contracts in place for the drilling rigs for this project. So it’s very much like an upstream project you would see onshore Australia other than the environment, which is quite different,” Gallagher said.
“And so it’s drilling costs and its pipeline connections, essentially with relatively simple processing facilities. So there’s no big LNG plants. There’s no offshore shipyard vessels, and so risk was a big factor in prioritizing this project over our other opportunities as well as the economics,” Gallagher said.
Modularized processing facility
Santos anticipates an internal rate of return, or IRR, from Pikka Phase 1 of about 19% at less than $60 long-term oil price, and a lifecycle breakeven oil price of around $40 per barrel, including carbon pricing.
In a parallel Aug. 16 press release, Spanish major Repsol, a partner in the OSA-operated Pikka unit and most of the surrounding acreage and units, said full development of Pikka Phase 1 “will consist of 45 wells to be drilled from a single well pad, using industry-leading technology to reduce the environmental footprint.”
The project also includes associated midstream facilities such as a modularized processing facility, operating center, seawater treatment plant, and pipelines.
Santos is focused on local procurement and employment as part of the Pikka project, with 98% of current employees living in Alaska. Phase 1 of the project is expected to create more than 500 jobs and construction of the project will create approximately 2,600 jobs.
One of the things that makes Gallagher “feel very comfortable” about the Pikka project is that 89% of the spend is in North America.
“There’s very little contracting outside of the U.S. … There is no Russian content,” he said.
“Around about 55% or so of the cost on this project would be fixed rate. And the remaining 45% or so is mostly labor costs. … So I think we include close to 10% contingency on this project.
“It’s a relatively low-risk project because we don’t have any of those huge plants, like an LNG plant or offshore vessel components to the project. It’s now really … a drilling project with some processing kit, which makes it a relatively low-risk project. So it’s more about the days it takes to drill wells as opposed to the rates,” Gallagher said.
Securing lease position
Santos’ OSA continues to be active in safeguarding its lease position on the North Slope (see adjacent map from Santos in the pdf and print versions of this story).
Santos and Repsol’s North Slope assets now include the Qugruk discovery wells that anchor the Pikka unit, the neighboring Horseshoe unit (Horseshoe and Stirrup wells) and the Quokka unit (Mitquq well), as well as several additional exploratory blocks, with a total of 467,761 gross acres.
Over the last year OSA has been unitizing many of its leases, which is a common practice for leases in Alaska that are, or soon will be, in danger of expiring because their time has run out.
While not all the leases in the units shown on the adjacent map that Santos provided in mid-August were growing close to their expiration dates, many were.
Quokka most recent
The most recent unit approved was the 81,110-acre Quokka unit, which is south of Pikka and northeast of the Horseshoe unit and was approved June 22.
The Quokka unit contains state land that includes eight Placer unit leases on 8,768 acres held by OSA (51%) and Repsol (49%).
Another working interest owner in Quokka, Finnex, holds four leases on 6,999 acres (100%) that fall within the Quokka unit.
In his decision to approve the new unit, Alaska’s Division of Oil and Gas Director Derek Nottingham wrote: “A unit must encompass the minimum area required to include all or part of one or more oil or gas reservoirs, or all or part of one or more potential hydrocarbon accumulations. … OSA has submitted confidential geological, geophysical, and engineering data” that supports these requirements.
OSA’s Dec. 30, 2021, application to form the Quokka unit was signed by OSA President Bruce Dingeman and includes the following: a unit operating agreement; the unit agreement form legally describing the requested unit area, its leases, and ownership interests; a map of the unit; and a plan of exploration.
The application also includes confidential economic and technical data.
Quokka exploration
Per the division’s approval letter, the Quokka unit area has been part of “scattered exploration efforts since 2001 and remains lightly explored outside of the Placer unit area.”
Several exploration wells have been drilled in the new unit’s acreage.
The area is covered by several proprietary and multi-client 3D seismic surveys. OSA obtained licenses to these surveys as well as surveys covering its Pikka and Horseshoe units and exploration acreage.
Starting in 2018, the company undertook a multi-stage reprocessing effort combining 15 separate surveys into one contiguous 3D survey. The resulting volume encompasses more than 1,700 square miles and more than 95% of OSA’s acreage, including the Quokka unit.
A crucial element of the reprocessing/merge of multiple seismic volumes covering a large geographic area is the incorporation of acoustic log data from wells. All relevant wells within the merged survey, which had the appropriate well log types, were evaluated to determine seismic phase and tie geologic formations to the seismic data.
OSA has interpreted the merged 3D volume and constructed geomodels incorporating well and seismic data. The geomodel analysis was used to develop maps of reservoir characteristics defining the unit area
The majority of the wells drilled in the Quokka unit are in the northern end of the acreage and have targeted Kuparuk or Brookian prospects.
The central part of the new unit has seen some exploration activity for Kuparuk and Brookian targets, but the southern portion of the unit has not been drilled.
Quokka wells
Following are the wells that were drilled in what is now the Quokka unit:
*Kookpuk 1, 1967, Union Oil Company of California.
*Cirque 1, 1992, Atlantic Richfield Co. (ARCO).
*Cirque 2, 1992, ARCO.
*Atlas 1 & 1A 2001, Phillips Alaska.
*Placer 1 & 2, 2004, ConocoPhillips Alaska.
*Cronus 1, 2006, Pioneer Natural Resources.
*Placer 3 well was drilled in 2016 by ASRC. This was the only well as of this date that was flow tested, reaching an average rate of 815 barrels of oil per day from the Kuparuk formation.
*Mitquq 1 & ST1 wells.
In December 2019, OSA drilled the Mitquq 1 well approximately 6 miles east of the planned Pikka unit’s Nanushuk Central Processing Facility. The primary target, the Brookian Nanushuk reservoir, had 211 feet of net oil pay, along with 24 feet of net gas pay.
The well also penetrated the Alpine C reservoir, which found 31 feet of net oil pay (39.1° API oil) and 21 feet of net gas pay. The well was logged, and fluid samples were taken.
Mitquq 1 ST1 was sidetracked from the Mitquq 1 well. It encountered 172 feet of net hydrocarbon pay including a gas cap of 29 feet. The well was logged, cored, and flow tested. The flow tests included a cleanup, flow period and a pressure build-up prior to the final flow test to access deliverability. The well flowed at a stabilized rate of 1,730 barrels of oil per day from a single stimulated zone.
Horseshoe straddles Colville
In a March 17 unit approval, signed by Nottingham, the division said Horseshoe covers some 156,000 acres on both sides of the Colville River.
Horseshoe is the most westerly OSA unit, with state tracts south and east of the Colville River where the river bends and National Petroleum Reserve-Alaska tracts north of the river and then west along the river.
Development of the proposed unit area will include one or more drill sites, pipelines and processing facilities, OSA said in the application.
The 52 leases in the Horseshoe unit have been explored directly by the following wells:
* Horseshoe 1 and 1A, drilled in 2017.
* Stony Hill 1, drilled in 2018.
* Stirrup 1, drilled in 2020.
Except for Stony Hill 1 which was drilled by ConocoPhillips Alaska, all the wells were drilled by OSA or one of its partners.
All the wells discovered oil, collectively identifying producible reservoirs in three different horizons of the Nanushuk formation.
Several additional wells were drilled nearby that are significant for demonstrating the prospectivity of the Nanushuk formation within the proposed Horseshoe unit area, OSA said in the unit application.
Stirrup 1 well sets record
Stirrup 1, which was presumed to have discovered a separate reservoir, is a direct analogue to the Horseshoe 1 Nanushuk discovery and as such OSA previously said it could underpin a possible standalone Horseshoe development.
Approximately 7-1/2 miles west of the 2017 Horseshoe 1 discovery well and almost 28 miles southwest of OSA’s planned Pikka unit development, Stirrup 1 successfully penetrated the Nanushuk reservoir and encountered an oil column with a net pay of 75 feet.
The wellbore was cored, perforated through a single-stage simulation and shut-in for six days to enable pressure buildup prior to testing. The Stirrup well flowed at a stabilized rate of 3,520 barrels of oil per day, exceeding company expectations and setting a record for a North Slope Nanushuk well that has been drilled from a straight hole with a single stage frac.
USGS geologist Dave Houseknecht previously pointed out that in an Oil Search publication the company had said Stirrup 1 was at the northern end of a seismic anomaly.
