Oil Search plans development decision in 2020 on big Pikka oil project on slope

Oil Search, a new operator on the North Slope, hopes to have its new Pikka project in production in 2023 with peak production estimated at 120,000 barrels per day, the president of the company’s Alaska subsidiary told Alaska business leaders in a briefing last week.

Estimated reserves at Pikka are now pegged at 720 million barrels in Pikka, which is 51 percent owned by Oil Search and 49 percent by Repsol, a major oil and gas company based in Spain.

Oil Search believes there is potential to expand the resource base to over 1 billion barrels, said Keiran Wulff, president of Oil Search Alaska LLC, at Alaska’s Resource Development Council’s annual conference in Anchorage.

Preparations for drilling two new appraisal wells are now underway to better define the reservoir. Ice road construction to the drill sites started last week, Wulff said. Oil Search hopes to do final engineering in 2019 and to make a final investment decision with Repsol in 2020, he said.

Some information on the project has been available through regulatory filings but Wulff’s remarks to the RDC are some the company’s first public comments on a schedule for major decisions. Wulff gave his presentation on Nov. 14.

Oil Search took over as operator of the Pikka project after purchasing the 51 percent interest held by Denver independent Armstrong Oil and Gas, which had explored and discovered the prospect with Repsol. Oil Search will pay Armstrong $850 million, of which $400 million has been paid already with the remainder due later this year.

Oil Search’s largest current project is its minority share in an ExxonMobil-led liquefied natural gas project in Papua New Guinea and it has been looking for ways to diversify, particularly in the U.S. Alaska represented an opportunity to get in on the ground floor of a major new exploration play in the west-central North Slope.

The timing was also good following the 2015 fall in oil prices and cutbacks by companies in Alaska. “We took advantage of the downturn,” Wulff said.

Oil Search and Repsol have made no firm commitments to the development but Repsol’s aggressive bids in a state oil and gas lease sale last Thursday, Nov. 15, for unleased tracts near the Pikka discovery provide a strong indication that the company views the regional potential very positively.

Pikka was found in an area near the Colville River that has been explored for years by industry. The discovery is on state lands between the producing Alpine and Kuparuk River fields, both operated by ConocoPhillips.

Armstrong, which is mainly an exploration company with long experience on the North Slope, had felt that companies drilling wells in the area earlier, which did not have the advantages of newer technology, had missed prospective targets.

The Denver-based company brought in Repsol, which had been looking for ways to enter North America, as a partner, and the two drilled wells over several years in the Colville River area before zeroing in on the Pikka prospect.

A key target was the Nanushuk, a regional geologic formation thought earlier to have little potential by other companies. After the discoveries by Armstrong and Repsol ConocoPhillips started exploring the Nanushuk in the Colville area and adjacent lands in the National Petroleum Reserve, and has made several discoveries including Willow, in NPR-A, which may rival Pikka in size.

An aspect of the Pikka development in the area is that the subsurface mineral rights are split between the state of Alaska and Arctic Slope Regional Corp., an Alaska Native development corporation based in Utqiagvik (formerly Barrow), and that the surface lands at Pikka are owned by a nearby Inupiat village, Nuiqsut.

In developing the field Oil Search must negotiate a surface use agreement with Nuiqsut’s village corporation, Kuukpik Corp. ConocoPhillips has negotiated similar agreements with Nuiqsut for the Alpine field, where surface lands are also owned by the village, and most of the terms relate to avoiding disturbance to local fish and wildlife and local job opportunities.

However, Nuiqsut has also pushed for a share of mineral royalties from production from fields on its lands and has succeeded in securing a small share of ASRC’s royalties from the Alpine field, according to people who are knowledgeable with the transactions. The village is now pushing for a similar small share in other oil prospects in the area, including Pikka.

An agreement of some kind with the village will be necessary before the project can move forward, according to an official at the state Department of Natural Resources who asked not to be identified.