On Nov. 1, Jade Energy LLC filed its fifth plan of development for Area F, Tract 32, ADL 343112, in the eastern North Slope’s Point Thomson unit with Alaska’s Division of Oil and Gas. The POD period runs from Jan. 1 through Dec. 31, 2023.
Jade, which is headed by North Slope geologist and entrepreneur Erik Opstad, is looking to drill a development well in Tract 32’s Sourdough prospect in first quarter 2024.
In analyzing the POD filing and reviewing previous Petroleum News reports, there are three major obstacles to Jade’s 2024 drilling plans:
1. The 40% net profit share leases, or NPLS, burden on ADL 343112, which can only be changed by legislation.
2. Hilcorp hasn’t transferred the Development Account Balance to Jade, estimated to be approximately $150 million.
3. Royalty relief (Jade is filing for royalty relief with the Division of Oil and Gas in the next two weeks or so).
Area F was created as part of the Point Thomson unit settlement agreement a decade ago. It brings together 7,647 acres of two blocks of non-adjacent leases in the northeast and southeast corners of the unit.
Jade’s Sourdough prospect is in the southeastern corner, in state oil and gas lease ADL 343112’s Tract 32.
Operator Jade holds a 100% working interest in the tract.
Brookian reservoirs
Potential Brookian reservoirs have been encountered by numerous wells drilled in and near the Point Thomson unit since the 1970s.
Tract 32 holds two of the mid-1990s oil discovery wells, Sourdough 2 and 3. BP drilled the 12,562-foot Sourdough No. 2 well in March 1994 and the 12,475-foot Sourdough No. 3 well in March 1996. In 1997 BP estimated the prospect held 100 million barrels of recoverable oil.
In addition to the data derived from these wells, various 3D seismic surveys have been acquired and interpreted over lands contained in Area F. Jade also acquired new compressive sensing imaging seismic 3D data from the area during the 2017-18 winter season with parameters optimized to characterize Brookian strata.
Began with Exxon deal
The 2012 Point Thomson Settlement Agreement between the State of Alaska and certain Point Thomson unit working interest owners, including then-operator ExxonMobil, required a separate plan of development, or POD, for Area F by Dec. 31, 2018.
The settling working interest owners were also required to maintain approved plans of development for this area or relinquish the Area F acreage.
Opstad saw an opportunity and on June 15, 2018, ExxonMobil Alaska Production Inc. entered into a farm out agreement with Jade for the purpose of further developing the Brookian reservoir in Area F. Pursuant to the agreement, ExxonMobil assigned Jade its 62.674% working interest in ADL 343112’s Tract 32. ExxonMobil retained a 2% overriding royalty interest.
Several month later BP assigned its 32.326% interest in the lease to Jade, retaining a 1.03% overriding royalty interest.
On Feb. 4, 2020, Opstad said that ConocoPhillips transferred its 5% working interest in ADL 343112 to BP, which was approved by Alaska’s Division of Oil and Gas effective Nov. 1, 2020.
Opstad said BP was obligated under an existing farmout agreement to transfer that interest to Jade, a process that was completed by Hilcorp.
First POD
Independent Jade submitted a POD for Area F, Tract 32 by Dec. 31 of 2018. Jade is not a party to the Point Thomson settlement agreement, but the division determined that the POD it submitted satisfied the settling working interest owner’s obligation to provide an Area F POD.
Jade conducted preliminary permitting activities in early 2019 with a goal of drilling the Jade 1 well in early 2020 using an ice road and ice pad. The results of the well would determine additional appraisal drilling in early 2021.
The approximately 12,750-foot well would penetrate “all of the prospective Brookian sand target that lay between 11,000 feet and the Hue Shale at 12,500 feet,” the company wrote in permitting documents.
In mid-summer 2019, a delayed barge carrying a rig to the Point Thomson unit forced Jade to postpone its program by one year. In the company’s next POD Jade pushed the timeline back to early 2022.
Second POD, 2019
“Generally speaking, we fully or partially achieved 92% of the goals (for 2019) … while 8% of the targets were missed. The misses were largely the result of new information provided by the second field study conducted by Jade to support appraisal operations,” the company wrote in a March 2020 filing submitted to state regulators.
As an example, Jade noted that a bathymetric survey of the Point Thomson unit service pier approach showed the need for sea-bottom dredging in advance of the arrival of a land barge. With no time to do the work, let alone permit it, the company was forced to delay its campaign.
Then came Covid-19
Then came the upheavals of early 2020.
“Despite the COVID-19 situation and challenges imposed by a less than robust commercial environment in the Alaska oil industry we are largely on schedule with plans outlined in the 2nd Jade POD,” Erik Opstad told Petroleum News in October 2020.
In a third plan of development filed around that time, Jade described a range of permitting and preparatory activities through 2021 to support early 2022 drilling.
But then the company faced an unexpected obstacle.
Hilcorp buys BP’s ANS interest
The sale of BP’s North Slope assets to Hilcorp complicated the final administrative transfer of 5% interest in the Area F, Tract 32.
It took until July 2021 to resolve the uncertainty, late enough in the year that Jade was forced to delay its drilling again, this time until early 2023.
Even with the final transfer, some administrative kinks have persisted.
Associated with that 5% working interest is the previously mentioned Development Account Balance that Jade has said in filings would “materially improve the calculated economics of the prospect.”
As of Nov. 16, Hilcorp had not responded to a query from PN asking if the transfer had been made, but Jade’s Nov. 1 POD filing said it had not.
Unexpected challenges
As Jade moved through the fourth POD for Area F it found itself facing several “new hurdles not anticipated” in January 2022 at the start of the fourth POD period.
Those included the following:
1. War in Ukraine - Jade found that Jade 1 appraisal drilling program and the Sourdough Development Program investment funds became “abruptly no longer available.”
2. Supply Chain Issues, Inflation, Sky-Rocketing Interest Rates, Declining ANS Oil Prices and Lack of Investor Interest - “Unfortunately, the supply chain problems related to COVID have simply been exacerbated by the war in Ukraine. Delivery times for many products are excessively long and some are simply not available at this time,” Jade said in its Nov. 1 filing.
“Unlike the large North Slope operators, Jade doesn't have the financial resources to acquire and sit on large inventories of tangible supplies. Additionally, with month-to-month inflation running a 40-year high, we have found budgeting to be nearly impossible.
“Climbing interest rates have introduced considerable uncertainty into the debit financing arena and a downward trend on ANS crude oil pricing have sharply reduced investor enthusiasm for North Slope projects of any kind,” Jade said Nov. 1.
3. NGO Actions and a Hostile Administration - “Jade found that … lawsuits filed against the CPAI Willow project and the 88 Energy Peregrine lease block, coupled with the downright hostile stance of the Biden Administration relative to the Alaska oil industry, has spooked the investment community,” Jade said.
Early in 2022, Jade found that previously committed funds were “suddenly no longer available given all the uncertainties.”
4. Change of Point Thomson Unit Operatorship - Although not as “significant as items 1 through 3,” the change in operator from ExxonMobil to Hilcorp was “none-the-less disruptive,” Jade said in its Nov. 1 POD filing.
“The net of these four unexpected hurdles was that investment funds previously available were withdrawn early in 2022 making the need to make the Area F appraisal drilling program and Sourdough Development Program economically attractive even more important,” Jade said.
“Fortunately, in recent months the price of ANS crude has stabilized. Futures price from the Alaska Department of Revenue (9/15/2022) was $91.96 per barrel and expected to remain around that through most of the remaining 4th POD period,” Jade said.
That pricing has been “constructive,” as the company works to bolster the Net-Present Value, or NPV, of its Area F development.
Recent good news
In the last few weeks, Jade said Nov. 1, investors who had suspended interest in Sourdough Development due to the above cited issues, have “suddenly expressed interest in the project once again. If we can demonstrate that the program is commercially viable.”
Unfortunately, according to 2020 modelling jointly conducted by Jade and the Alaska Department of Natural Resources, the project has a negative NPV, which Jade said means it has to be able to show a positive NPV and higher oil prices alone won’t do it.
Editor’s note: Part 2 of this story will report on what Jade Energy is doing to enhance the economics of its project.
