During a May 12 talk to the Alaska Support Industry Alliance, Pat Foley, senior vice president for Alaska operations for Caelus Energy Alaska, made some tantalizing hints of a possible large oil find at Smith Bay on the North Slope.
Caelus, with its partners Nordaq Energy and L71 Resources, drilled two exploration wells this winter in their Tulimaniq leases in Smith Bay, about 59 miles southeast of Barrow.
Foley commented on the need for a large oil find, given the challenging economics of any oil development at such a remote location.
"If you're out here looking for oil, you're looking for elephants, and that's exactly what we're doing," Foley said. "We're really excited about the wells that we drilled and the results that we found. We're making plans right now to be back out again next winter."
The concept for next winter is to drill a third well and then drill out a small horizontal well, Foley said.
"We're going to frack it and we're going to flow it. And we know that we're on a path to a very giant oil field over there," Foley said.
‘Really exciting’ finds
Caelus has previously commented that it is seeking oil in Brookian turbidites at Smith Bay — with known oil seeps, the region is thought very prospective. Turbidites are rocks consisting of sandstone layers and channels, laid down as a consequence of periodic submarine sand flows in ancient marine basins. The Brookian refers to the youngest and shallowest of the major rock sequences under the North Slope.
Because of the layered and channelized nature of turbidite sequences, the sand reservoirs within the sequences tend to be compartmentalized, a factor that can make oil production from the rocks challenging. Hence, presumably, the need for fracking for oil flow testing at Smith Bay.
Foley indicated that these turbidite-style deposits have become a prime focus for Caelus on the North Slope. The company's business model involves chasing the tight, hard reservoirs that have been left behind, he said.
"For the most part these are the same sections, they're in the same depositional system, and we think that's going to be the future for us on the North Slope," Foley said.
In addition to its exploration venture at Smith Bay, Caelus has an exploration lease position of about 350,000 acres east of Prudhoe Bay and south of Point Thomson. The company shot some high-resolution 3D seismic in that acreage the winter before last, Foley said.
"We started to work on that data and we've found some really exciting turbidite fans on that," he said.
North Slope fracking
In the central North Slope, Caelus operates the Oooguruk field from an offshore artificial island. Oil production at Oooguruk involves the use of horizontal production and injection wells. To stimulate production, Caelus has been conducting the largest fracking operations ever done on the North Slope, using about 2.5 million pounds of proppant, Foley said. Production will probably swell to some 20,000 barrels per day over the next few months and then decline from there, he said.
Caelus has sanctioned a new development, the Nuna project, from an onshore drilling pad at Oooguruk. But that project, requiring an additional $1 billion in investment, is currently on hold because of the low oil price. First oil can flow about two years after project restart, Foley said.
Cutbacks
In May, with Caelus forced to cut expenditure because of the oil price situation, Foley had to go through the harrowing experience of laying off about 25 percent of the company's Alaska workforce while also losing about 200 contractors as a result of suspending drilling operations at Oooguruk. Depending on the future oil price situation, drilling could resume as early as the beginning of next year, Foley said. Given the number of drilling slots that could still be used on the Oooguruk island, there may be a further three years of drilling to be done, he said.
Asked about expectations for future oil prices, Foley said that, given the long life of a typical oil field, the key question is the price level over the next couple of decades. But it will take a price of at least $60 per barrel, perhaps $70, to restart Nuna, he said.
Reflecting on the current debate over state tax credits for oil companies, Foley said that a purpose of the credits is to balance the economics of Alaska projects for new companies that do not have production revenue against which they can use expenses to reduce their tax liabilities. The era of tax credits has seen a significant upsurge in activity on the North Slope, leading to a level of activity that Foley said that he hopes to continue to see in the future.
This story originally appeared in Petroleum News and has been republished with permission.