Oil explorers have returned to the site where the North Slope’s first oil discovery was made, in 1945.
The deposit at Umiat, a remote location near the Colville River in the far southeast corner of the National Petroleum Reserve-Alaska, was too small to produce commercially, but the oil was of high enough quality that U.S. Navy drillers could tap wells and use the unrefined crude oil in diesel engines in heavy equipment and drill rigs.
An independent oil company has now returned to Umiat with hopes of increasing the known resource and producing it. Australia-based independent 88 Energy has purchased the small field, the company announced Jan. 11.
88 Energy will acquire the property, consisting of two federal leases comprising 17.633 acres, from Malamute Energy, Inc. and Renaissance Umiat LLC. The leases have 10-year terms ending in 2029 but the lease terms also require 88 Energy to drill an exploration well by August 2022.
Umiat has been drilled and explored for over half a century. The 23-million-acre NPR-A was formed in 1923 as Naval Petroleum Reserve No. 4. Although there was no known oil at the time government geologists felt the region had potential and recommended the reserve be formed as a strategic future reserve for Navy fuel supply.
The Navy began exploring the reserve in the mid-1940s, finding the small Umiat deposit as well as a gas field at Barrow, at the northernmost tip of the NPR-A, which now supplies the Inupiat community of Utkiaqvik.
At Umiat the Navy drilled 11 test wells by 1953. Because the deposit was small and remote no further work was done until 2014 when Linc Energy, in a “farmout,” or sublease, from Renaissance Umiat, drilled two wells that flowed at maximum rates of 800 barrels per day and sustained rates of 200 barrels per day.
While these well rates are too small to support development in a remote location – Umiat is about 100 miles west of the Trans Alaska Pipeline System – geologists familiar with the project felt that flow rates could be mechanically boosted with the use of natural gas if a local gas source could be identified.
There is gas in the area including at Kemek, a small gas discovery also made by the Navy in early drilling, but Linc and Renaissance Umiat were unable to raise more exploration funding after the collapse of oil prices in 2015. Linc subsequently filed bankruptcy.
Current recoverable reserves estimated at Umiat are 123.7 million barrels of oil but Linc and Renaissance Umiat believe new exploration can add resources.
What is unique about Umiat is that the reservoir is very shallow, at just a few hundred feet in depth, and that the oil is 45 degree API and of high enough quality that early Navy explorers were use the oi as fuel with no processing.
88 Energy is acquiring Umiat a low cost, including a commitment to spend $1 million in site rehabilitation for the two wells drilled by Linc Energy and granting of a 4 percent overriding royalty interest to be held by remaining owners of Linc Energy and Renaissance Umiat.
While the acquisition cost was modest the commitment to drill the new well in 2022 will require a substantial investment, likely in the tens of millions of dollars. When Linc Energy drilled its wells in 2014 and 2015 the company had to build and move equipment on a temporary 100-mile winter snow road from the Dalton Highway, the all-year road that connects North Slope oilfields with Interior Alaska highways.
However, what eases logistics challenges is that Umiat has a permanent year-around airport, a legacy of the U.S. Navy work, that is now maintained by the state of Alaska.
Umiat fits well in 88 Energy’s strategic plan for northern Alaska. The Australian company has drilled several exploration wells on state lands in the central North Slope further north and is now planning a new well on federal NPR-A leases a few miles north of Umiat.
That well will target prospects in the Nanushuck sandstone, a regional geologic structure where ConocoPhillips and other companies have recently made significant discoveries. If that test, called 88 Energy’s Project Peregrine, is successful the company may be able to link its support infrastructure with Umiat to lower costs.
Oil companies have explored the petroleum reserve for decades but it is only in recent years that commercial scale deposits have been located further north by ConocoPhillips.