Recent discoveries in formations once thought to have limited potential may have unlocked two huge new plays for the Arctic. These discoveries alone will reverse an alarming downward oil production trend on Alaska’s North Slope once they come on line. The 2014/2015 Nanushuk discovery in the Colville Delta area was made by Repsol and Armstrong Energy, LLC. According to Bill Armstrong, founder and company president, “We have multiple other horizons that we plan to develop: at least six different zones. The Nanushuk (middle Cretaceous) and the Alpine (Jurassic) sandstones are the biggest at this time and will be developed first.” Former Alaska Department of Natural Resources Commissioner Mark Myers said the field “has the potential to be second in size to Prudhoe Bay [passing the supergiant Kuparuk Field].”
On January 13, 2017, ConocoPhillips, the world’s largest independent, announced a major Nanushuk Formation oil discovery, Willow, in their Greater Mooses Tooth Unit. This find lies approximately 50 km south-west of Armstrong’s Nanushuk discovery, further substantiating the size of this new oil play on Alaska’s North Slope.
The second major discovery of 2016 was made by Caelus Energy Alaska in the Smith Bay area in the Cretaceous Torok Formation that lies directly below the Nanushuk Formation. Caelus claim the fan structure spans more than 777 km² and possibly holds over 10 Bbo. Both plays could extend well beyond the current discoveries and provide new exploration targets along the Arctic coast.
Needing a Big Find
Mention Alaska’s North Slope, and Prudhoe Bay, North America’s largest oil field, will certainly come to mind. Discovered in 1968, the field and its primary reservoir, the Triassic-aged Sadlerochit Formation, came on stream on June 20, 1977. The greater Prudhoe area has now produced over 13 Bbo. North America’s second largest oil field, Kuparuk, was discovered in 1969 with production commencing in 1981. These two fields have anchored development of the area, which now boasts more than 12 producing fields and over 17 Bbo total production.
Now comes the bad news. Oil production in the region has been declining since 1988 and the Alyeska Pipeline Service Company has identified potential low flow problems with the 48-inch (1.2m), 800-mile (1,287 km) Trans-Alaska Pipeline System (TAPS). The 2016 average throughput was 510,000 bopd, slightly up from the prior year. However, the US Energy Information Administration sees continued declining production from the North Slope and in a low oil price case, if the throughput goes below 350,000 bopd, TAPS could be decommissioned in less than 10 years.
Early production estimates for the Nanushuk discovery and the recently formed Pikka Unit (a unit is a group of leases covering all or part of a hydrocarbon accumulation) indicate an output of 120,000 bopd by 2021. The Smith Bay discovery is much further from infrastructure and will take longer to come on line but Caelus estimate production from this field could be about 200,000 bopd. If all pans out, these fields will give TAPS throughput a much needed boost.
Astounding Nanushuk Discovery
Repsol E&P USA, as operator for Armstrong Energy, LLC and GMT Exploration, drilled the initial Qugruk wells, two with encouraging production tests and a third with hydrocarbons identified in multiple zones. These wells, drilled during the short 2013 winter season when the terrain is frozen, reached depths of over 3,000m. Subsequent delineation drilling the following years confirmed the development potential of the area. A total of 16 positive wells were drilled during four winter drilling seasons. Good quality 30° gravity oil at rates as high as 4,600 bopd and relatively shallow depths make this find particularly attractive.
Late in 2015, Armstrong acquired a majority interest in their joint holdings (303,000 hectares) with Repsol and became operator. A third-party report released by Armstrong estimated C-1 (contingent) reserves at 497 MMbo, C-2 at 1,438 MMbo and C-3 at 3,758 MMbo. Armstrong said these contingent reserves would be converted to Proven, Probable, and Possible where appropriate upon the final investment decision. Mark Myers, then Alaska Department of Natural Resources Commissioner, said “the discovery was amazing… the possible contingent number makes the discovery the largest since Prudhoe Bay.”
What makes this discovery possibly even more amazing is the primary reservoir, the Nanushuk Formation, and where the oil was generated. David Houseknecht said, “with 150 ft [46m] of net pay sandstones in a 650 ft [200m] oil column covering more than 10,000 hectares, reservoir rocks with a porosity of 22% is pretty astounding. In most other explored areas, the topset beds of the Nanushuk do not form reservoirs this prospective. Much of the North Slope’s oil has been generated south of current production and migrated north. North of the Barrow Arch, seismic data show similar source rock intervals dipping steeply north and oil could have migrated south into this trap.”
As Houseknecht explains, “This clinoform deposition system filled the Colville Basin from west to east, eventually spilling north over the Barrow Arch. In the area of the Colville Delta where the discovery was made, sediment flow was slowing down, sedimentation changing, and a marine shelf was forming. Just north of the current Colville Delta area the shelf margin changes from a south to north orientation to a west to north-west direction. I believe the change in the relict shelf margin is a key to this oil play. Another key is the deposition of a condensed shale over the reservoirs as a consequence of a rise in sea level that forms a seal as well as a potential oil source. The prospective middle Cretaceous shelf margin play may extend 100 miles [161 km] west of the Colville Delta and remains almost untested.”
Smith Bay Discovery
Approximately 170 km up the coastline north-west from the Qugruk discovery, Caelus discovered a massive oil deposit in the Torok Formation that directly underlies the Nanushuk. Its two Smith Bay wells encountered 305m of oil with net pays ranging from 56m to 68m. The wells were not flow tested but extensive sidewall coring confirmed quality reservoirs with oils ranging from 40 to 45° API gravity. They estimate between 6 and 10 Bbo in-place.
According to Jim Musselman, Caelus CEO, “This field is roughly equivalent in scale to the Kuparuk River field. It lies in an ancient submarine fan structure that spans more than 300 mi² [777 km²] in the Smith Bay area. The reservoirs sit at a depth of 5,000 ft [1,524m] at this base of slope in the Torok fan complex. A third well is being planned to flow test the reservoir but I remain confident, based on core and seismic data, in the overall scale of this find. In fact, the submarine fans in the Torok extend well beyond the area encompassed by our seismic surveys so this discovery may be much larger than originally estimated.”
The oil occurs in multiple sand bodies and compartmented reservoirs, common in similar submarine systems, and will be challenging as well as expensive to develop. “We’re confident that the rocks here are fine [good reservoir quality],” says Musselman. “Development will require horizontal wells and fracking.”
The company has been focusing on Brookian rocks in their exploration and development efforts on the North Slope. They have found Torok reservoirs at the Nuna development in the Oooguruk field located just east of the Pikka Unit, and have identified Brookian targets in their acreage holdings east of Prudhoe Bay near the Canning River. However, their Smith Bay discovery remains a major step out of the true and trusted reservoirs that have anchored North Slope production for so many years.
The Next Steps
Caelus officials admit development of the Smith Bay field will be expensive because of its remote location. “It will cost $8–10 billion to bring this field on line,” says Musselman. “Field viability would require sustained mid-$60 oil prices and a future stability of Alaska’s fiscal system.” The company has not given a time line for development but state that once started, first oil is possible within five years.
Being much closer to existing infrastructure, Armstrong is preparing to accelerate development of its Nanushuk discovery. The company is working on an Environmental Impact Statement and construction is expected to begin on its completion. Oil could start flowing in 2021. Development will include 150 wells drilled from three gravel pads, an operations pad, access roads, and various pipeline and connections to existing facilities.
These two discoveries have both State and federal officials excited about the future. A joint State and federal oil and gas lease sale was held December 14, 2016. High bids for federal leases totaled $18.8 million compared to last year’s total of $790,000. ConocoPhillips bought most of the federal leases but had to outbid Armstrong Energy, LLC to get some of them. The State fared equally as well, seeing one of the most significant sales in nearly two decades. They received 402 bids and winning bids totaled nearly $17.8 million.
As witnessed by the bidding, the companies are equally as excited as State and federal officials about the prospects offered by two new, potentially very extensive plays in spite of the current low oil prices. Certainly Alaska’s North Slope has not seen this kind of optimism for a long time.