The recent and apparently large oil discoveries on Alaska’s North Slope by Caelus Energy Alaska and Armstrong Oil & Gas, Inc. and its partner Repsol have shown the world that giants may still exist in the 49th state. And, more might be waiting to be found.
Caelus estimates its 2016 find at nearly 6 billion barrels of oil in place. If its anticipated recovery rate of 30 to 40 percent is correct, its producible oil potential would be between 1.8 and 2.4 billion barrels. Armstrong is reporting contingent C1, C2 and C3 reserves of 497 million barrels (proven), 1.4 billion barrels (probable) and 3.8 billion (possible), respectively, in its discovery, which was announced in 2015.
Both point to new life on Alaska’s North Slope, which hasn’t seen a major discovery since the 1994 find of the Alpine field, expected to produce more than 750 million barrels of oil. If these new discoveries can be developed in a timely fashion, fears of the Trans-Alaska Pipeline System (TAPS) shutting down in two decades and an oil-dependent state going insolvent will likely ease.
Brought to light is a fairway stretching from the Colville River Delta to the west margin of Smith Bay, which is likely rich in conventional oil yet most efficiently extracted using unconventional technology. Sitting in stratigraphic traps that have remained mostly undetected until the advent of 3-D seismic, these hydrocarbons are now ripe for the picking.
Race to Production
While Caelus has taken much of the media’s spotlight after its October 2016 announcement, some believe Armstrong’s find might be more viable at this point. Armstrong has drilled 16 wells, performed flow tests, and its discovered resources have been confirmed by third-party engineering firm DeGolyer and MacNaughton. Its discovery is closer to the existing infrastructure in the Alpine and Kuparuk River fields, making production more economically feasible, said David Houseknecht, AAPG Member and senior research geologist for the U.S. Geological Survey.
Caelus’ discovery carries more uncertainty on all fronts, as only two wells have been drilled, neither has been flow tested, and the discovery is roughly 70-85 miles from infrastructure, he added.
“There is the potential for two giant oilfields,” Houseknecht said. “At this point, the information released by Armstrong is more certain than Caelus’, but both sets of information are very positive and both indicate that there is substantial potential in these two large discoveries.”
In the eyes of Mark Myers, AAPG Member and former commissioner of Alaska’s Department of Natural Resources, Armstrong’s advantage is that its discovery – in the Colville River Delta – lies on land, unlike the Caelus find, which is located in shallow state waters in Smith Bay.
“It’s easier to produce from onshore because you have no ice issues, and environmentally it’s less difficult,” Myers said.
However, in addition to the needed production infrastructure, given the estimated production rates of 120,000 barrels per day by Armstrong and up to 200,000 barrels per day by Caelus, these projects will require significantly more pipeline capacity than what currently exists to carry such volumes to Alaska’s main oil artery, TAPS, Myers said.
Caelus has also reported that a financial climate of $65 a barrel would be needed to make its discovery cost effective.
Myers said he feels “confident in the geologic potential and the availability of appropriate technology to produce both plays” and remains optimistic about the North Slope’s undeniable oil and gas potential.
“If proven to be commercial, just the potential resources that Caelus and Armstrong have announced alone exceed the USGS’ current published assessment for mean technically recoverable conventional oil on all state lands on the North Slope. The scope of these recent discoveries shows that in spite of having produced more than 17 billion barrels of oil, the North Slope remains a very underexplored basin with huge undiscovered potential,” Myers said.
“Many people have written off the possibility of finding this scale of discovery onshore or in state waters, but the North Slope is one of the most prolific basins in the world in terms of generating hydrocarbons. Technology is now at the point where even in low permeability conventional reservoirs many of these stratigraphic plays can now be successfully produced. It’s a pretty exciting time.”
Between Conventional and Unconventional
A roughly 100-mile long fairway – extending west from the Colville River Delta and spanning at least 40-50 miles wide – could contain numerous stratigraphic traps, such as those discovered by Armstrong and Caelus, Houseknecht said. These particular traps lie in the Nanushuk and Torok formations, which comprise delta and basin-floor fan deposits, respectively. This fairway includes the northeastern part of the National Petroleum Reserve – Alaska (NPRA) and nearshore state and federal waters.
Unlike the oil that migrated into Prudhoe Bay and the Kuparuk River Field from the south, Houseknecht believes oil also migrated into the Nanushuk and Torok from the north near the axis of the Barrow Arch. The same source rocks that fed the reservoirs of Prudhoe Bay and the Kuparuk River Field are present beneath the new discoveries, and are present in a series of downdip, offshore grabens north of the discoveries, Houseknecht explained.
The top of the Nanushuk at Armstrong’s discovery is just 4,100 feet deep – meaning drilling costs may be relatively low and that the play could be drilled relatively quickly. “It may be more economically viable than a deeper reservoir,” Houseknecht said.
While Caelus has not announced the depth of its discovery in the lower Torok, existing wells close to Smith Bay in NPRA suggest a depth of 5,500 to 6,500 feet.
Both reservoirs contain thick oil columns measuring 650 feet and more than 1,000 feet, reported by Armstrong and Caelus, respectively. Armstrong estimates up to 225 feet of net pay, while Caelus believes its net pay to be between 183 and 223 feet.
The Caelus discovery appears to have lighter oil with an API gravity of 40-45 degrees. Armstrong reports thicker oil with an API gravity of 30 degrees. The company also indicates an average reservoir porosity of 22 percent. Nearby wells in NPRA suggest Caelus’ porosity to be in the upper teens.
In other words, in the Armstrong discovery the oil is thicker but the reservoir’s porosity is higher, and high porosity usually translates into better productivity, Houseknecht said. With Caelus’ discovery having lighter oil yet lower porosity, the two plays might be a wash in terms of productivity.
Comparisons aside, both discoveries have tapped into a hybrid type of play: conventional oil in a lower quality reservoir that often requires horizontal wells and hydraulic fracturing to maximize the efficiency of producing from these “transitional reservoirs.”
Hitting It Big Again
While Alaska’s North Slope has been explored by geologists since 1901, with Prudhoe Bay being its largest discovery in 1968, the state is quickly becoming the “Comeback Kid.” While most of the major operators have packed their bags, small to mid-sized companies are creeping along the north face of the Brooks Range with a fresh set of eyes, a new set of tools, a willingness to spend money and a savvy for subtle traps.
“These discoveries are likely to be very significant and likely to rank among top oilfields in Alaska and maybe even nationally,” Houseknecht said. “The Armstrong discovery is so astounding because it literally sits on top of the Colville High, one of the very first areas explored in the state and one of the most heavily explored areas. It just goes to show that even in the intensely explored parts of Alaska there are still these opportunities lurking to discover giants.”
The Armstrong discovery alone could boost throughput in TAPS by 30 percent or more, Armstrong has reported.
Myers describes the recent discoveries as the “start of an epic” play on the North Slope where the challenge is not in finding oil but in finding a good quality reservoir that is relatively shallow in terms of maximum depth of burial.
Another challenge sits on the political front. Wary of Alaska Gov. Bill Walker’s decision to delay paying tax credits to exploration companies, Myers said it could have a negative impact on attracting new players to the field.
“I believe that it is in the state’s interest to retain exploration credits because exploration is the riskiest part of the oil and gas business,” he said. “Those are the incentives that brought Caelus and Armstrong to Alaska. I believe they are very, very important. I would recommend that the state should reevaluate the structure of its oil and gas taxes so that significant exploration credits are retained while credits and deductions for production from low risk and largely already capitalized existing proven fields are reduced.”
Walker’s office did not respond to requests for comment, but did issue a press release in 2016 noting, “My administration will continue to work with the industry to identify new development opportunities in Alaska’s oil and gas sector, and provide appropriate investment incentives given our current fiscal climate.”
The Long Road to Oil
On average, North Slope fields brought online to date have taken about eight years between discovery and sustained production, said Paul Decker, AAPG Member and manager of Resource Evaluation in Alaska’s Division of Oil and Gas. Some have taken much longer than that.
“There is a full process that unfolds between initial discovery and project startup: additional exploration and delineation drilling, flow testing, facilities and infrastructure engineering and design, state and federal environmental impact analyses, developmental permitting, commercial negotiations to secure capital funding, and alignment among mineral, surface and working interest owners, followed by project sanction and construction,” Decker said.
While Armstrong anticipates production beginning in 2021, only time will tell. In the meantime, “The Last Frontier” state will likely continue to live up to its name.