Booming Interest in Nanushuk
Major players explore the formation’s production potential
North Slope tundra.
Both ConocoPhillips and Oil Search are optimistic about the potential of the Nanushuk Formation on the North Slope following the combined drilling of nine delineation wells over the winter in the Greater Willow and Pikka-Horseshoe units.
“Since taking on operatorship of the Alaska assets in early March 2018, we have gone from 3 to over 130 full-time team members and undertaken a two-rig, four-well exploration appraisal drilling program while continuing to advance the Pikka Development project,” Oil Search Alaska President Keiran Wulff says.
History and USGS Data
Although oil was discovered at the formation by the Navy in the 1940s, activity in the Nanushuk Formation has been limited.
Prior to 2015, about 150 exploration wells had penetrated the Nanushuk Formation and Torok Formation (which lies 2,000 to 3,000 feet below the Nanushuk), yet oil production was established in just one oil pool with less than 10 million barrels of recoverable oil in each formation, according to USGS.
“There was really nothing of significance found, and I know the oil companies kept tabs on the Nanushuk,” USGS Senior Research Geologist Dave Houseknecht says. “I know a number of companies, when they got 3D seismic data in the NPR-A [National Petroleum Reserve–Alaska], they were mapping amplitudes that are seismic indications that there may be oil or gas saturated rocks there.
“But the leadership of the companies never had enough faith in these anomalies because there had never been economically viable discoveries made in the formation.”
However, when Armstrong and Repsol announced the Pikka discovery following successful exploration during 2014-2015, the industry’s attention returned to the shallow formation. In 2017, the Horseshoe wells extended the pool by more than twenty miles, making it the largest US onshore conventional oil discovery in thirty years.
Together, the Nanushuk and Torok Formations form a huge wedge of sediment deposited in a deep water basin. While the Torok Formation was deposited on the floor of the deep basin, the younger Nanushuk Formation was deposited in shallow water and includes potential reservoirs in deltaic, shoreface, and fluvial sandstones. The new discoveries in both formations involve oil pools in stratigraphic traps concentrated along ancient shelf margins, according to a USGS release.
Much of the oil within the formation has been missed in the past for two primary reasons beyond the now-outdated thought within the industry that older rocks are more prospective, says Houseknecht.
“The Nanushuk prospect could be a very big boost for investment, employment, and production on the Slope. I think the industry has just scratched the surface in terms of exploration—so we are not close to realizing the full potential.”
One was the industry’s desire to avoid drilling hazards; the Nanushuk Formation is so shallow that it can have permafrost in its upper layers, which commonly traps gas at the base.
To counter this particular formation’s characteristic, and to access the potential in deeper formations, companies used drilling mud containing high-density minerals to create a large pressure on the borehole.
“So, because of that, many of the exploration wells—many of those 150 wells that penetrated the formation—really did not have good oil shows when they drilled through the Nanushuk,” Houseknecht says. “In other words, the mud weight in the borehole was so large that it prevented oil that may have been present in the formation from getting into the well bore so that well-site geologists could detect it.”
The other factor that led to companies missing the vast oil deposit were attempts to reduce the footprint of exploration—many of the exploration wells over the last several decades have been directionally drilled.
“There are examples of exploration wells that actually drilled beneath the Pikka and Horseshoe discoveries, for example,” Houseknecht says. “If those had been vertical exploration wells, chances are the oil accumulations would have been discovered much earlier.”
Following the expanded discovery in the Pikka-Horseshoe area by Repsol and Armstrong Energy, a new player in the Alaska oil and gas industry, Oil Search, seized the opportunity to gain more than just a toehold on the North Slope.
Oil Search holds a 25.5 percent interest in the Pikka Unit, which is primarily targeting the Nanushuk Formation. Additionally, the company has varying interest in other leases, including Horseshoe at 37.5 percent, that target Nanushuk and other reservoirs.
The mapping of the Nanushuk and satellite reservoirs in the Pikka Unit is based on an extensive grid of 3D seismic data and nineteen well penetrations, according to an Oil Search news release.
“Oil Search assumed operatorship of the assets in March 2018,” says Oil Search Spokesperson Amy Burnett. “Oil Search holds varying percentages in more than 830,000 acres on Alaska’s North Slope, making us the third largest leaseholder in Alaska.”
Oil Search estimated during the acquisition process that the Alaska assets include about 400 million barrels of oil from Nanushuk and about 100 million barrels from Alpine C and other satellites, according to Burnett. The Repsol development plan submitted as part of the Environmental Impact Statement for the project in 2016 estimated 750 million barrels of recoverable resources.
Thus, the objectives of Oil Search’s first winter drilling in Alaska were to confirm reservoir distribution and establish deliverability.
“This program successfully helped further test the boundaries for the productive areas of the formation within our unit boundaries and provided an opportunity to test the well design to help the company better plan its drilling and completions program for Pikka,” Burnett says.
“Oil Search’s inaugural appraisal drilling campaign this past winter in Alaska was successful, with oil encountered in all four well penetrations. Initial data analysis supports the company’s view of a likely material upgrade in contingent resources and indicates deliverability from the Pikka Unit will meet the company’s development plan assumptions.”
Oil Search expects that the initial development will target materially more than 500 million barrels of oil in the Pikka Unit. First production is set to commence by 2023, with ultimate plateau production rates estimated at about 120,000 barrels gross per day.
“We are planning for an exploration drilling program in the winter of 2019/2020. We anticipate drilling at least two wells, but the specific locations are still being evaluated,” Burnett says.
“Oil Search’s inaugural appraisal drilling campaign this past winter in Alaska was successful, with oil encountered in all four well penetrations.”
Like Oil Search, ConocoPhillips is also pushing forward with tapping the potential of the Nanushuk Formation.
In 2016, ConocoPhillips drilled wells Tinmiaq 2 and Tinmiaq 6, which were the discovery wells for Willow—an oil pool separate from those being tapped by Oil Search in the Nanushuk Formation. The discovery of Willow, in the Bear Tooth Unit in the northeast portion of NPR-A, was announced in 2017.
After a successful 2018 exploration and appraisal season in the Greater Willow Area, ConocoPhillips released a resource estimate at a range of 400 million to 750 million barrels of oil equivalent.
“In 2018, we had a six-well winter exploration program with five well tests,” ConocoPhillips Alaska Communications Director Natalie Lowman says. “Five wells were in NPR-A, and one on state acreage in the Colville River Unit. We also shot 250 square miles of seismic in 2018. This past winter we drilled eight wells [one was at Kuparuk] and will perform tests on eight wells.”
The company has 100 percent interest in about 1.2 million acres of exploration and development lands in the NPR-A, including the Willow discovery.
The company estimates that Willow could produce in excess of 100,000 barrels of oil per day. Due to that resource, along with additional potential in the area, ConocoPhillips has proposed a new, stand-alone production facility.
ConocoPhillips estimates first oil production by 2024-2025, with an investment of $2 billion to $3 billion. The cost of supply of the new resource is estimated to be less than $40 per barrel, making it economically viable.
“Obviously, anywhere you drill for oil, market price plays a big role, but beyond that there is an issue that exists in the North Slope that does not exist in the Lower 48, which is that as you increase distances from existing infrastructure—the pipeline—the economic viability becomes more and more challenging,” Houseknecht says.
“The same applies to going deeper. There was a lot of hype about the Torok Formation. At any one location, the shallow Nanushuk may be economically viable if a discovery is made of 50 million barrels or 100 million barrels recoverable, but going deeper into the Torok Formation may not be as economically viable, as it is a tighter formation, and it would take a large threshold to get over the economic viability hurdle.”
ConocoPhillips is the only operation in Alaska producing oil out of the Nanushuk Formation at present.
“We have a substantial acreage position on the Western North Slope to target the Nanushuk Formation. We have been producing oil from the Nanushuk since 2008 with the startup of the Qannik development at Alpine,” Lowman says.
“Obviously, anywhere you drill for oil, market price plays a big role, but beyond that there is an issue that exists in the North Slope that does not exist in the Lower 48, which is that as you increase distances from existing infrastructure—the pipeline—the economic viability becomes more and more challenging.”
Because of the large number of wells drilled into the Pikka-Horseshoe trend—as well as the Willow trend—the discoveries in Nanushuk have moved beyond the initial discovery announcement and have been moderately delineated.
“All the information that I’ve seen based on the latest drilling confirms all the optimism companies have expressed,” Houseknecht says, noting that, since many of the wells and associated data is proprietary, he doesn’t have any independent indications with regard to what the companies are estimating.
“Nobody knows for sure how much oil will be produced, and we won’t have a great picture of that until production starts: until the long lateral wells are drilled and fracked and we see how reservoir performance will stand up over many months or many years,” he says.
Nonetheless, Houseknecht points out that oil fields tend to grow.
The original estimates for Prudhoe Bay—when made at a similar point of exploration as Pikka-Horseshoe—were 7 billion to 9 billion barrels.
“As more wells were drilled, companies encountered additional reservoirs that they were not aware of originally, and so Prudhoe has already produced close to 15 billion barrels—you can see how much larger it has grown through the years.”
The only blemish on the winter drilling season in the Nanushuk Formation was Winx 1. The well, on land leased by Great Bear Petroleum Operating, ended up being evaluated as a dry hole after the operations were farmed out to a consortium of 88Energy, Otto, and Red Emperor.
However, Houseknecht points out that a single dry well drilled this year is nothing to worry about.
The failure of the Winx well is the first time since 2002 that a well that intentionally targeted the Nanushuk was unsuccessful.
“The encouraging thing about this play is that all of the 3D seismic data that I have available to me shows there are many, many, many more seismic anomalies that have not been tested in the Nanushuk Formation,” Houseknecht says. “So, it is a highly prospective, very encouraging trend, and the only downside of it right now is that virtually all of the acreage that is available is already leased.”
The trend is largest in the NPR-A, though a sizable part of it exists on state lands, as well.
As the trend extends farther north and west of Willow, toward Point Barrow, the Nanushuk becomes so shallow that there could be potential issues with the formation being too cold, as well as potential interference from permafrost in the occurrence of oil accumulations.
“Nevertheless, even before you get that far west, there are probably two dozen or three dozen seismic amplitude anomalies that have not yet been tested in areas that should not be bothered by that cold subsurface influence on the oil,” Houseknecht says.
Much of the seismic for western NPR-A is more than thirty years old—and in 2D—so there is little known about the exploration potential farther west in NPR-A.
Nonetheless, Houseknecht says that directly west of Willow, all the way to the Chukchi Sea coastline, there is prospectivity in the Nanushuk Formation.
“There could well be significant potential offshore for the same Nanushuk play,” Houseknecht says. “If you go due north of where the Pikka discoveries and Willow discoveries were made, there’s not much potential as much of the formation has been eroded many millions of years ago. But if you go a bit farther west—say the Smith Bay area—if you go offshore there, the Nanushuk Formation drops down across normal faults and becomes thicker and thicker.”
Even with the Nanushuk Formation having a clear eastern border, not far outside the NPR-A, it has stimulated exploration farther east in younger formations that have similar characteristics. So no matter which way a company looks, there are impacts from the successful exploration of the Nanushuk Formation.
“The Nanushuk prospect could be a very big boost for investment, employment, and production on the Slope,” Alaska Oil and Gas President Kara Moriarty says. “I think the industry has just scratched the surface in terms of exploration—so we are not close to realizing the full potential.”
Setting the Price at the Pump
Gasoline and diesel prices fluctuate with the crude oil market and refinery capacity, and not always to the advantage of gas stations. “Whether the price of oil is low or high, it’s not necessarily driving profit,” Vitus Energy Co-founder Mark Smith says. “In fact, high prices consume more working capital, so we’re not a big fan of high prices, either.”