Caelus Energy Alaska LLC is a reminder that finding oil is only part of the challenge of working in Alaska - getting it out of the ground and moving it to market is the other part.
In early 2016, the local subsidiary of the Texas independent made one of the largest recent oil discoveries - Alaska or otherwise - with its two-well Tulimaniq exploration program in Smith Bay off the coast of the National Petroleum Reserve-Alaska.
The company announced estimates of 6 billion to 10 billion barrels of oil in place. But Tulimaniq is located in a remote, environmentally sensitive part of the North Slope. The geology suffers from relatively poor reservoir quality. And oil prices have been low.
Caelus wants to return to the region for appraisal drilling, but it deferred an exploration program planned for early 2017 and deferred the program again for this past winter. The company cited low oil prices and uncertainty over production tax policy at the state level.
Quantifying the find
Caelus acquired the assets of Pioneer Natural Resources Alaska Inc. in early 2014.
The centerpiece of the acquisition was the producing Oooguruk unit and its undeveloped Nuna satellite, which Caelus eventually sanctioned but has yet to bring into production.
Caelus also acquired North Slope exploration acreage through lease sales and other deals. The company acquired a 75 percent working interest in 26 leases in the Tulimaniq area from NordAq Energy Inc. in June 2015 and built upon existing NordAq permitting activities to quickly plan a two-well exploration program for the following winter season.
The CT-1 and CT-2 stratigraphic test wells were located near the mouth of the Ikpikpuk River, some 59 miles southeast of Barrow. A primary goal of the exploration program was to collect rock samples and to conduct vertical seismic profiling in the wellbores.
Company officials dropped optimistic hints about the program at industry conferences throughout the spring of 2016 and announced plans to return for a third Tulimaniq well.
In October 2016, the company revealed that the two CT wells and earlier seismic data suggested the possibility of 6 billion barrels of oil in place at the Smith Bay leases, with the possibility of 10 billion barrels or more across the complete Smith Bay area.
A field of that size could add some 200,000 barrels per day to the trans-Alaska oil pipeline, which moved just 525,376 barrels per day on average throughout 2017.
In a presentation before the Dallas Desk & Derrick Club in May 2017, Senior Vice President for Business Development Matt Musselman described Tulimaniq as a light oil discovery in a Brookian fan complex covering a 300-square-mile area on the North Slope.
A chart included in the presentation provided an estimate of 6.257 billion barrels of oil in place at Tulimaniq and broke the estimate into seven geologic sections: Western Channel 1, Western Channel 2, Central Channel, Lobe 4, Lobe 3, Deep Fan 1 and Deep Fan 2.
The thickest, largest and most prolific was Deep Fan 1, which accounted for 3.345 billion barrels. The next was the Central Channel, which accounted for 948 million barrels.
The chart assumed a 38 percent recovery rate for all seven sections, leading to recovery of 2.378 billion barrels. In previous presentations, the company noted that enhanced oil recovery using natural gas from the field could push recovery rates to 60 or 70 percent.
As described by the company, the Tulimaniq appraisal program would include a well with a short lateral section to help verify the extent of the resource. It would also include a period of flow testing, which was not conducted for the first two stratigraphic wells.
The appraisal program would also begin the process of tackling the geology.
To produce the light oil of the Torok formation from the geologic “fans” within the Brookian formation, Caelus wants to replicate the mechanical fracturing technology used at Oooguruk. “We’re confident that the rocks here are fine,” Caelus CEO Jim Musselman explained in 2016. “It’s going to require horizontal wells. It’s going to require fracking.”
What will it cost?
The company is estimating $8 billion to $10 billion development costs for the project.
A big chunk of that price tag is transportation - $1 billion for a road from the Colville River unit and $800 million for a pipeline traversing that same vast expanse of coastline.
Independent processing facilities would also add to the cost. The project is also expected to require four pads and some 400 wells, according to Caelus. By comparison, ConocoPhillips has drilled some 200 wells from five pads at the Colville River unit.
To accommodate those large expenses, the price of oil would probably need to stay in the range of $60 per barrel for a sustained period, according to the company. The monthly prevailing value of Alaska North Slope crude oil passed that threshold in November 2017 for the first time since June 2015, according to the Alaska Department of Revenue.
Other leads
Prior to the Smith Bay acquisition, Caelus had already acquired more than 350,000 acres of exploration leases on the eastern North Slope, between Prudhoe Bay and Badami.
The company acquired some 167 square miles of 3-D seismic over the region in 2015 and later some reprocessed 272 square miles of 3-D seismic. The seismic program “found some really exciting turbidite fans,” according to Senior Vice President Pat Foley.
The fans of the Brookian formation present similar challenges to Tulimaniq, although in a relatively less isolated setting. The company also referred to some possibilities worth evaluating in an older and deeper sequence in the region known as the Ellesmerian.
In the May 2017 presentation, Musselman noted that the region contained “multiple source rocks, plays and leads” and two “drill-ready prospects,” Denali and Silverthrone.
