ConocoPhillips is buying everything it can get its hands on in the western North Slope, it seems.
The company announced June 18 it will acquire Caelus Energy’s small Nuna oil project, a confirmed oil discovery near ConocoPhillips’s existing Kuparuk River and Alpine fields.
The purchase continues an aggressive strategy by the company to expand its presence on the slope through exploration, development of new oil it finds, and purchases of confirmed oil from other companies.
ConocoPhillips also owns a major stake in the large Prudhoe Bay field, also on the slope.
The Nuna deal includes 11 state of Alaska leases covering 21,000 acres and has an effective date of June 14, assuming state of Alaska regulatory approvals. No purchase price was disclosed.
Caelus, an independent company based in Dallas, is gradually exiting Alaska, as other major independents have done. Caelus recently sold its producing small Oooguruk field, which is near Nuna, to Eni Oil and Gas, a major international company based in Italy. Eni owns and operates the Nikaitchuq field a few miles east of Oooguruk.
Caelus had plans to develop Nuna and had estimated the project could produce 20,000 barrels per day to 25,000 barrels per day. Caleus’ remaining holdings in Alaska are leases held for exploration including where a promising offshore oil discovery made, at Smith Bay off the coast of the National Petroleum Reserve-Alaska.
ConocoPhillips spokesperson Natalie Lowman said her company is withholding an estimate of production or resource potential, however, until a new appraisal is completed.
In a statement, ConocoPhillips Alaska president Joe Marushack said, “This transaction represents an attractive addition to our expanding North Slope position and will allow ConocoPhillips to cost-effectively develop Nuna utilizing Kuparuk River Unit infrastructure.”
The ability to access existing infrastructure, in the form of pipelines and process plant capacity, is a significant advantage because if Nuna were still owned by Caelus or another company a complex facility and capacity-sharing agreement would have to be negotiated which would impose certain costs on Nuna.
With Nuna and the Kuparuk facilities under common ownership those costs are reduced.
Caelus had estimated Nuna’s development cost at $1.2 billion in 2015 and had built some infrastructure at Nuna including a 22-acre gravel pad and a short gravel access road.
The company had developed an initial plan for 15 producing wells and 15 injector wells for Nuna using a hydraulic fracturing procedure to break up tight rock holding the oil, but those plans may be changed by ConocoPhillips.
A royalty reduction agreement had also been negotiated with the state for a temporary incentive royalty of 5 percent compared with the existing 12.5 percent to 16.66 percent royalty on the leases, but that deal hinged on Caelus sanctioning the project by April, 2015.
That happened but Caelus’ plan to finance developed became unhinged when crude oil prices plunged in late 2015.
The incentive royalty is no longer in effect. ConocoPhillips’ Lowman said her company is aware of the prevailing royalty rates.
ConocoPhillips is continuing with an aggressive strategy of developing smaller, undeveloped oil accumulations around the larger Kuparuk River and Alpine fields. The company is now engaged in development of two new fields in the National Petroleum Reserve-Alaska, GMT-2 and Willow, and now has its first NPR-A field, GMT-1 in production.
The company is also appraising a small oil discovery south of the Alpine field and plans to also begin production of a small satellite deposit within the Alpine field using new extended-reach drilling technology.
While the Nuna purchase is relatively small ConocoPhillips has made two larger strategic acquisitions on the slope in recent years, the purchase of Anadarko Petroleum’s 22 percent minority holdings in the Alpine field and NPR-A discoveries in early 2018, and the acquisition of BP’s minority share of the Kuparuk River field in mid-2018.
Buying out Anadarko gave ConocoPhillips a 100 percent ownership of Alpine, GMT-1, GMT-2 and Willow in the petroleum reserve, and a big majority ownership position in the Kuparuk River field, where ExxonMobil, Chevron/Texaco still holds small stakes.
Having a controlling interest in these fields typically means faster decision-making on new projects in the fields because the role of partners, which may have different commercial interests, is lessened.