The Alaska Division of Oil and Gas has partially approved a pair of BP Exploration (Alaska) Inc. development plans for the western edge of the Prudhoe Bay unit, a region at the center of recent debates over how to spur North Slope oil industry investment.
The plans concern the Borealis and Orion participating areas, overlapping jurisdictions targeting reservoirs at different depths in the northwest corner of the Prudhoe Bay field.
While the southern and central portions of these participating areas have been drilled or are already in production, the division claims BP “has failed to follow through with the development commitments” for the northwestern portion of both participating areas.
These commitments primarily concern I Pad.
BP originally expected to build the pad in the northwest portion of the participating areas and bring the region into production by 2006. It later deferred those plans until the 2010 timeframe, but now, according to the state, the schedule is closer to 2017 to 2020.
According to state estimates, I Pad could access between 69 million and 144 million barrels of recoverable oil at Orion and between 2.7 million and 3.9 million barrels of recoverable oil at Borealis. In 2011, BP President John Minge said I Pad would “result in drilling some 50 new wells to access about 80 million barrels of additional reserves.”
Because of this discrepancy in resource size, and because the reservoirs sit one atop the other, BP believes it is best to develop Borealis in conjunction with Orion. And because Orion is the more technically complex reservoir, it feels the need to defer both projects.
In its most recent development plans, BP proposed facility work needed to bring northwest Orion into production, but deferred development at northwest Borealis. The state called the Orion program a “significant step,” but said there was “no justification” for allowing BP to hold the tracts at Borealis without a plan for development.
As such, the state approved the entire eighth Orion plan of development through the end of 2013, but only partially approved the eleventh Borealis plan of development, rejecting the plans for the northwest portion. And the state “encouraged” BP to contract the northwest portion out of both participating areas until it is ready to begin development.
I Pad proposed in 2004
The western region of Prudhoe Bay first became a priority for the working interest owners of the field starting in the late 1980s, around a decade after the field came online.
After BP became sole operator of Prudhoe Bay in October 2000, it combined various interrelated efforts under way into the Prudhoe Bay West End Development Project.
The region produced from three pads at the time: W Pad, L Pad and V Pad.
The state approved the Borealis participating area in August 2002 to include numerous wells already drilled and producing from L Pad and V Pad. But in April 2004, BP requested an expansion, including initial discussions of the proposed I Pad to the north.
BP proposed bringing I Pad online by 2006, drilling between five and 15 wells. In its fourth plan of development for Borealis, submitted October 2004, BP said it was already permitting I Pad and expected to drill appraisal wells in 2005. But when BP submitted its fifth plan of development in October 2005, the company did not address the I Pad area.
For that reason, the state rejected the plan as incomplete. But BP countered, claiming recent changes to the Economic Limit Factor — the dominant mechanism in the state oil production tax code at the time — jeopardized the economics of the I Pad project.
The state asked for more details. In January 2006, BP gave a technical presentation detailing plans to drill the I-100 well in the northwest portion in March 2006 and to develop the northwest portion of Borealis and Orion participating areas simultaneously.
The explanation sufficed, and the state approved the fifth plan of development.
Economic Limit Factor
Over the same period of time, BP also pursued Orion development.
The state approved the Orion participating area in February 2004. In its initial plan of development, BP proposed a three-phase development plan, the final phase of which would include between 30-60 wells drilled from the proposed I Pad starting in 2006.
But in its second plan of development, submitted in October 2005, BP said I Pad was still being evaluated. The state rejected the plan as incomplete because BP failed to describe any development activities for the northwest portion of the participating area. As with Borealis, BP claimed changes to the Economic Limit Factor challenged the project.
The Economic Limit Factor lowered the tax rate for smaller fields, but in his January 2005 state of the state address then-Gov. Frank Murkowski said it “was never the intention of the Legislature which crafted revised ELF legislation in 1989 to have to reduce taxes close to zero in situations in which satellite fields are administered as one field with the Prudhoe Bay field.” He subsequently proposed to treat Prudhoe Bay satellites Borealis, Midnight Sun, Orion, Polaris, Point McIntyre, Aurora and the original Prudhoe Bay participating area “as one field for purposes of the economic limit factor.”
At Meet Alaska, shortly after the announcement, the heads of BP and ConocoPhillips said the decision forced them to defer the $600 million to $700 million Orion project, but in subsequent information given to the state over the following year, BP presented a “best case” schedule to drill the I-100 well in 2006 and bring I Pad into production by 2010.
Although the state questioned this delay, it ultimately approved the plan of development, but the state also told BP that its third plan of development should set out a firm timeline for I Pad construction and, if the timeline extended beyond 2007, an explanation for the delay. And the state asked for detailed results from the I-100 well drilling program.
When BP next submitted plans of development in October 2006 — the sixth for Borealis and the third for Orion — it again delayed I Pad drilling until 2009, saying the still unthawed ice pad for I-100 prevented it from laying gravel until summer 2008.
The state approved both plans for another year.
According to the state, the I-100 well “confirmed 13 feet of reservoir quality sand in the Kuparuk C1 interval and identified an oil-down-to-depth of 6,634 feet.” A lateral off that well, the I-100PB, “confirmed net pay in the Schrader Bluff (Orion Reservoir) Nb-sand, OA-Sand and Oba-Sand,” but three other sands tested in the reservoir were unattractive.
In October 2007, BP said engineering work had uncovered a “large subsurface ice lens” at the original I Pad location and the company said it was looking for a new location to the north. The state approved both plans — the seventh for Borealis and fourth for Orion.
Around the same time, Frank Paskvan, Prudhoe Bay western region subsurface development manager, told Petroleum News BP estimated an I Pad installation by 2011.
In early 2008, just a few months after the passage of a new production tax code called Alaska’s Clear and Equitable Share, BP said it had deferred around $1 billion from its Western Region Development Project, including its planned investment on I Pad.
In October 2008 — the eighth plan for Borealis and fifth for Orion — BP said it had completed engineering for the revised I Pad location and was focusing on how existing infrastructure would handle viscous oil in the region. The state approved both plans.
HB 110 revival: 50 wells
For the next two years — the ninth and tenth plans of development at Borealis and the sixth and seventh plans at Orion — BP said it had deferred I Pad operations. The state approved all four plans, but when BP deferred the project again in September 2011 — in its eleventh and eighth plans, respectively — the state rejected the plans as incomplete.
Earlier in the year, I Pad emerged as a crucial point of discussion in debates over House Bill 110, a revision to the existing oil production tax promoted by Gov. Sean Parnell.
In hearings in early 2011, BP Exploration (Alaska) CFO Claire Fitzpatrick said the bill could make the I Pad project economic, leading to some 50 new wells accessing about 80 million barrels of oil. After the Alaska Senate made clear it wouldn’t pass the changes before the end of the 2011 regular session, ConocoPhillips CEO Jim Mulva called for a better investment climate during an April 2011 speech before the Resource Development Council. Among the short-term investments ConocoPhillips might be able to make with lower taxes, Mulva pointed first and foremost to the $1.5 billion-2 billon I Pad project.
In December 2012, BP told the state the resources in the northwest portion of Borealis were minor compared those in the overlying Orion reservoir. BP wanted to defer Borealis development to proceed in conjunction with Orion, but also said technical challenges around viscous Orion oil production forced it to defer the I Pad project indefinitely.
The state and BP met numerous times in early 2012. Eventually, the state told BP the participating areas might contract if the company did not develop the northwest area.
By August, BP supplemented its eleventh and eighth plans of development, respectively.
For Borealis, BP included plans for the northwest region, but only in conjunction with other regional activities. The state ultimately approved the plan of development partially: blessing all the proposed activities except those outlined for the northwest portion.
For Orion, BP said it needed to address some challenges facing I Pad. Those included upgrading the Gathering Center 2 processing facility to handle viscous oil and studying an alternative for developing the viscous oil reservoir in the Schrader Bluff N Sand.
The alternative involved using electronic lift pumps instead of partial gas processing and gas lift. If successful, BP said, the alternative would reduce the scope of the project.
In its supplement to the eighth plan of development for Orion, BP committed to upgrade GC-2 to handle more solids and to continue studying options for the N-Sand reservoir.