“Success has many fathers, failure is an orphan” is an adage that applies very well to exploration. In addition, there seems to be a tendency for successful explorers to attribute their past discoveries to rapier-like thought and dynamic execution, whereas reality is often more complicated. The history of exploration efforts on the North Slope of Alaska illustrates this quite well.
Seeps well known
In 1826, a British naval polar expedition under John Franklin sailed into a small inlet on the north-eastern coast of Alaska and named it Prudhoe Bay, after a small village in north-east England. Long before this, however, the Eskimos had known about and utilised oil and gas seeps along the north coast of Alaska, east of Prudhoe Bay. These were examined by prospectors and the US Geological Survey (USGS) from 1917-1921, after which some oil claims were staked.
Following World War 1, the US Department of the Navy financed USGS field work to establish the geological framework of the North Slope region. A significant report was written in 1930 but by this time interest had waned, as there were prolific oil sources elsewhere. However, in 1943, with supplies under pressure in the midst of World War II, the US Navy launched a rigorous assessment program which encompassed extensive geological mapping, gravity and magnetic surveys, widely-spaced reflection lines, and drilling (a total of 45 core holes and 37 wells), leading to the discovery of three modest oil accumulations and two gas fields, mostly in the folded foothills.
This information, coupled with the experience of how to operate in Arctic conditions, became available in the early 1960’s and was invaluable to the imminent exploration of the region.
Oil companies arrive
BP’s interest in Alaska stemmed from a strategic ambition to diversify away from its main source of crude oil, namely Iran, where its reserves had been nationalised (for a while) in the early 1950’s. The company’s experience and success in the Zagros foldbelt of Iran and Iraq influenced the choices made, one of which was the North Slope.
In late 1959, BP formed a joint venture with the Sinclair Oil and Gas Company, a significant USA downstream operator with almost no access to crude oil, whereas BP had copious supplies from the Middle East. As an adjunct to this supply agreement, the two companies agreed to work together on exploration and this eventually led to activities in Alaska, where BP’s true and tried exploration concepts were to be applied.
These concepts were, simply stated, to drill the big obvious anticlines, if at all possible near oil seeps. This approach defined a first exploration phase, when the large and obvious foothills anticlines which were at least indirectly associated with oil seeps were drilled. Apparently, the US Navy’s data on reservoir presence was not reviewed and structural interpretations were weak - seismic data was generally of little value at this time.
This early program was a failure; only one marginal gas discovery was made, although numerous oil shows were found.
The next step for the joint enterprise was exploration on the coastal plain of the Central North Slope. The first North Slope lease sale was held on 9 December 1964. The prevailing industry wisdom had become that the highest structure in the area, the Colville feature, was the best prospect, with the Prudhoe Bay feature second. Accordingly, BP/Sinclair bid more strongly on the former and won whilst losing the crest of the latter to Richfield/Humble (later Arco and Exxon) – but with BP winning the flank acreage - Sinclair had apparently gone cold on the area.
In 1965 BP/Sinclair drilled the Colville No. 1 well on the Colville High. Whilst it established the presence of oil shows in pre-Cretaceous rocks offering the best reservoirs seen to date on the North Slope, the well was deemed disappointing and also a negative signal for prospectivity at Prudhoe Bay. There was then a serious possibility that BP would opt out of the entire basin, dependent on the result of Richfield/Humble drilling their crestal Prudhoe acreage. Thus, when a January 1967 lease sale offered the remainder of the crestal Prudhoe structure lying offshore, it was scooped up by Richfield/Humble against little opposition.
A discovery at last!
Also in January 1967, having drilled a dry hole in the foothills - and resisting corporate pressure to abandon their North Slope exploration program - Richfield/Humble moved their rig to the location of the Prudhoe Bay State No. 1 well. They commenced drilling in April and were to continue for most of the year.
After an offer to buy BP’s flanking acreage - long considered, debated and finally spurned by BP - Richfield/Humble announced a discovery in January 1968, testing oil in the March of that year.
Throughout 1968 progress was still relatively hesitant, in retrospect because the discovered hydrocarbon phase was much more gassy than anticipated. However, Richfield/Humble announced in June 1968 that they would drill a confirmation well, Sag River State No. 1, 10 km south-south-west of the Prudhoe Bay discovery well. Finally, BP mobilized a rig to the flanks of Prudhoe Bay which spudded the Put River #1 well in November, and discovered an extensive oil column.
What had escaped everybody in the industry – and appears so obvious with the benefit of 20/20 hindsight – was that the Prudhoe Bay field, which is what had been discovered, had an enormous gas cap and that it was the flanking acreage which covered the vast oil rim. A ‘foreign oil company’ had secured the major oil discovery with around 30 billion barrels in place in a province where gross oil production would peak at around 2 million barrels per day: in the era where BP was known as a “two pipeline” company, the North Slope of Alaska would provide one of them.
From 1969 onwards, there were many lease sales and many companies arrived in Alaska to try their luck. And as mentioned before, there were many large discoveries and, given the extensive well and seismic data base, sophisticated insights on chronostratigraphy, sedimentation, structural models, source rocks and petroleum systems, the province was soon thoroughly understood.
Or was it?
By the time of the 1983 OCS 71 lease sale, the industry had identified the huge offshore prospect known as Mukluk for over ten years. An extensive seismic grid was now available and several wells had been drilled onshore which could be extrapolated to the offshore. Mukluk was seen as an areally huge, relatively subtle structure with a maximum of 100m of closure through which or into which oil had unquestionably migrated.
To develop its interests in North America, and in particular to facilitate its Alaska developments, BP had by this time bought 53% of SOHIO, a Cleveland-based, dominantly downstream, company. SOHIO took over Alaskan exploration and production, running it from its Western Region offices in San Francisco, directed by its corporate office in Houston. SOHIO executives saw Mukluk as enormous – bigger than Prudhoe Bay itself – and attached a 50% chance-of-success to it. The OCS 71 lease sale was a frenzied affair in which over US$ 2 billion was spent in bonus bids, about half of this by SOHIO, with nearly US$ 0.5 billion on just three blocks at Mukluk.
This frenzy was nothing compared with the rush to drill! By November 1983, a drilling island had been built in 20m of water at a cost of US$ 20 million and Mukluk #1 spudded. Development and construction teams had already been established and hiring had commenced. All those with access to the drilling results had been sworn to secrecy and pledged not to trade in relevant companies’ stocks, all under signature.
By coincidence, I arrived in San Francisco as the well was drilling to do some weeks’ work on a completely unconnected lease sale: before I left BP London I had heard that the prospect was huge but that SOHIO management were perhaps slightly over-optimistic. After a couple of weeks, two things dawned on me: firstly, that I had never been in a place where such unbridled optimism was both present and expected; and secondly that there were a couple of geoscientists who had had considerable reservations about whether any Mukluk palaeo-structure had existed at the time of oil migration, or whether any palaeo-trap had been subsequently breached….and had been ignored.
The well results arrived whilst I was there, first cores and then logs. Although reservoir quality was good, the reservoirs were water-bearing. SOHIO had drilled the world’s most expensive dry hole, at least up to that point.
I will pass over what happened next – dubious plans to drill Mukluk #2, poor public relations, the passing down of blame from SOHIO executive management to the geoscience teams, the SOHIO redundancy programs. What I can say, again based on my own experiences a few years later in Houston, is that I found that SOHIO had some excellent geologists, geophysicist and engineers.
The long road
This tale is based on many discussions with colleagues, a lot of whom would point out that I have told the story too simply and that there were many more twists and turns in the road than those I have described: I am sure this is true.
This tale illustrates a few important things. First of all, allowing executive management to choose prospects to drill is not necessarily the right thing to do. Secondly, although there is nothing like the feeling of having an exploration success, learning from our failures is probably more important. One thing I have found is that oftentimes an alternative view, interpretation or model has been generated within an exploration team but that this has been ignored, or included grudgingly in the ‘risk’: but it turns out not to be a ‘risk’ but a ‘loose end’ and is the reason why the prospect fails.