from Hellenic Shipping News/Platts

As Alaska’s oil production declines, enormous attention is being paid to even the slightest hint of a find that could turn the state’s fortunes around.

Much hope has been pinned on the development of the Nanushuk, a broadly-dispersed set of rocks along the Colville River that extends west into the National Petroleum Reserve-Alaska.

Some companies have had success finding oil, with claims ranging from a conservative 500 million barrels to over 3 billion barrels of recoverable resources.

But a recent dry hole in the Nanushuk has brought to light some of the economic and technical challenges facing those who want to tap into those potential riches.

The stakes are high for Alaska. The Nanushuk discoveries have created new interest in the North Slope within industry and excitement among state leaders who have long worried about the gradual decline of the existing fields.

Alaska is now producing about 500,000 b/d, one fourth of production in 1988.

While enormous reservoirs are believed to exist offshore, attempts to explore there have not been successful. And while the Arctic National Wildlife Refuge is also believed to hold prolific resources, political and environmental opposition makes development there problematic.

High hopes, dry holes

For months, Alaska and industry officials have talked up the Nanushuk.

ConocoPhillips and Repsol, along with independent Armstrong Oil and Gas, have made potential billion-barrel discoveries in the area. Keiran Wulff, president of Oil Search Alaska, which has taken over Armstrong’s properties, told an Alaska industry conference last fall his company believes reserves at the Pikka discovery will reach a billion barrels after winter drilling results are evaluated.

ConocoPhillips said last summer the Willow find could reach 700 million barrels of oil equivalent. The company is still drilling evaluation wells at the project.

Alaska Gov. Mike Dunleavy gushed about Nanushuk’s potential at the CERAWeek conference in Houston in March, claiming companies have found 5 billion barrels, although that has not been confirmed.

But not everyone hits it big. One exploration group, a consortium of three small independents, has seen its hopes sour. Led by 88 Energy, an Australian company, the consortium drilled Winx-1, an exploration well a few miles east of Horseshoe-1/1A, a big discovery drilled in 2017 by Armstrong.

But the drill bit at Winx-1 dug into bad reservoir rock this spring. It is the first known dry hole in the Nanushuk, at least where results are public. All signs initially looked good at Winx-1. Nanushuk rocks were present and seismic profiling indicated the presence of potential traps. Other tests indicated the presence of liquids in the rocks consistent with the nearby Horseshoe well.

Then came bad news: Drilling showed that layers of clays dispersed through the rocks served to bind the petroleum fluids to prevent them from flowing. Winx-1 was abandoned by 88 Energy and Red Emperor Resources, one of the Australian partners. The third partner, UK -based Pantheon Resources, has refocused its efforts to other North Slope prospects.

Geological and economic risks

The Nanushuk and a related geologic formation, the Torok, are still new on the horizon for industry explorers. But the existence of the rocks and the fact they hold oil have long been known.

Over decades, companies exploring the NPR-A and state lands along the Colville River drilled through the Nanushuk and Torok on the way to deeper prospects that appeared of better quality. Over the years about 150 wells have been drilled in the area, said Dave Houseknecht, a US Geological Survey geologist, at an Alaska resources conference last fall.

Paul Decker, a former state geologist, said in an interview there were oil shows in many wells but no one stopped to take a close look at the rocks until recently.

Now, the advent of advanced seismic imaging and other analytic tools give industry the ability to spot stratigraphic traps that were previously undetected, and new drilling techniques like horizontal wells allow companies to develop resources previously thought uneconomic.

Decker said ConocoPhillips was the first to reassess the Nanushuk in its exploration in the northeast NPR-A and that put the company on the path to Willow, a potential billion-barrel discovery now planned for development.

Repsol and its partner Armstrong followed, exploring the Nanushuk on state-owned lands near the Colville River, discovering Pikka, another hoped-for billion-barrel find. Armstrong recently sold its interests to Oil Search, an Australian company.

Caelus Energy, a Dallas independent, said it made what may be a significant find in the Torok, another geologic formation, in nearshore waters at Smith Bay, northwest of Willow and Pikka.

“We estimate that there is a lot of oil in these plays, but there is also a lot of uncertainty because the reservoir quality (of the Nanushuk) appears to deteriorate from north to south,” Houseknecht said at the Alaska Resource Development Council conference in November. The Torok formation appears to be of lower quality, too.

Besides the geologic risk there’s also more economic risk as prospects are explored further west and farther from infrastructure in the NPR-A, requiring expensive roads and pipelines. Another complication may be that wells in the Nanushuk and Torok, where the rocks are tight, may have to be hydraulically fractured. That will require mobilization of equipment and possibly trucking water, because water sources are scarce in the petroleum reserve.

For the long run, Houseknecht is bullish, however. “We believe there could be eight billion barrels discovered in the Nanushuk and Torok across NPR-A and the adjacent state submerged lands,” he said.

Most of the resource potential, about 7 billion barrels, is onshore in the northeast NPR-A where ConocoPhillips is exploring.


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