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North Slope drilling reaches record level during past winter

Posted: June 4, 2014 - 4:20pm

A record number of drill rigs were at work on the North Slope this winter. According to weekly working rig data compiled by Baker Hughes Inc., drilling reached a peak of 17 rigs during the week of Feb. 28, traditionally the busiest time for the North Slope.

Baker Hughes, which has compiled national working rig data since 1987, confirmed the 17 rigs at work in a single week was a record for Alaska.

The weekly average for the December through April winter season was 11 rigs compared to an average of 7.8 rigs working last winter.

Alaska Oil and Gas Association President Kara Moriarty credited the increase in activity to the Legislature’s passage in April 2013 of Senate Bill 21, which changed the state’s oil and gas production tax.

“The North Slope rig numbers from Baker Hughes provide proof that oil tax reform is working,” she said. “The whole purpose of drillings rigs is to drill for oil; they are oil-seeking by design. As we saw firsthand, the old tax structure did not encourage oil production. The increase in oil company investment and new drill rigs we are experiencing now is beyond encouraging.

“Senate Bill 21 (tax reform) provided the framework companies were looking for to hire more employees, put more drill rigs into action, and, ultimately, put more oil in the pipeline.”

The Baker Hughes data analyzed by the Journal of Commerce shows that drilling during this winter season on the Slope was almost double the number of rigs active in the winter of 2010-11, when the weekly average was just 6.

During that period the previous state oil production tax known as ACES, or Alaska’s Clear and Equitable Share, was in effect.

The data indicates that prior to the Legislature’s enactment of ACES in 2007, the number of working rigs averaged about 10 per week during the 2006-07 winter.

After ACES was enacted, the weekly rig count average dropped to 8 in the winter of 2007-08, rose to just more than 9 in 2008-09, dropped again to 8.6 in 2009-10, and declined further to an average of 6 working rigs in the winter of 2010-11.

Activity increased to a weekly average of 7.8 rigs in the winters of 2011-12 and 2012-13, and then increased sharply to an average of 11 working rigs in the first season following the passage of SB 21.

The slight increase in 2012 and 2013 winters under ACES can mainly be attributed to an aggressive exploration program by Repsol on the North Slope, which employed three rigs for a program during those two winters and again in 2014.

Although Repsol’s program was underway before the Legislature passed SB 21, the company has said it was attracted to Alaska in 2011 because of the proposed tax change.

Repsol wanted to get its exploration underway before the Legislature passed the tax change so as to be “ahead of the herd,” of an expected surge of companies entering Alaska after the tax change, Bill Hardham, Repsol’s Alaska manager, has said in briefings.

Drilling peaks during winter on the Slope because that is the only season in which rigs and heavy equipment for exploration wells can be moved overland on ice and snow roads to remote locations.

But rigs are also busy year-around in the established producing fields that have gravel roads and pads to allow movement of equipment at any time of the year.

These rigs are busy drilling new production wells and doing repairs and maintenance work on wells.

Each rig typically employs 100 directly and several hundred additional workers indirectly in various service and support work, ConocoPhillips president Trond-Erik Johnansen told the Anchorage Chamber of Commerce May 12.

Since passage of SB 21, ConocoPhillips has put two additional rigs to work, Johnansen said.

The Nabors 7ES rig went to work in the Kuparuk River field in May 2013, just weeks after the Legislature’s April 20 passage of the tax bill. 

In February 2014, the Nabors 9ES rig also went to work in the Kuparuk field.

Scott Jepsen, ConocoPhillips’ vice president for external affairs, told state legislators in an April 9 briefing that together the two rigs will drill about 10 new wells per year.

New projects announced by the companies in recent months include plenty of new assignments for rigs. One project by ConocoPhillips is the North East West Sak, or NEWS, a viscous oil project in the Kuparuk River field. It will need 19 wells. The Moose’s Tooth project in the National Petroleum Reserve-Alaska will require eight wells. Drill Site 2S, a new production pad in the southern part of the Kuparuk field, will also require new wells.

The CD-5 project, a satellite to the producing Alpine field, is now under construction and will require 15 wells. CD-5 was approved by the ConocoPhillips board of directors prior to the tax change, however.

BP has meanwhile put two new Parker Drilling Co. rigs to work in the Prudhoe Bay field, which it operates and the company’s rig count will climb higher. BP plans to add two more rigs, one in 2015 and one in 2016, according to Janet Weiss, BP’s Alaska president.

Weiss spoke at the Anchorage Chamber on Feb. 10.

BP’s plans for its two new rigs will add 30 to 40 new wells per year each year in the Prudhoe Bay field.

At Milne Point, a nearby field BP also operates, the company has put a coiled-tubing drill rig to work and plans seven new wells there in 2014. BP also plans new production wells in the Sag River formation, a thin, technically difficult reservoir section that overlies part of the Prudhoe Bay field.

A 15-well program in the Sag River formation in 2015 and 2016 will test new strategies BP has developed for this prospect.

“If we are successful this particular program could enable a possible 200 wells and 200 million barrels of new resources at full development,” Weiss told the Anchorage chamber in February.

A large Prudhoe Bay project BP is planning, though not yet decided on, is a development in the field’s west end. It involves 130 new wells on a new well pad, the first at Prudhoe in more than a decade, and expansion of two other well pads, plus expansions of processing facilities.

One other BP project, Weiss said, is a potential north-end Prudhoe Bay development that could see another 30 wells and 55 million barrels of new oil resources.

While drill rigs do different kinds of work on wells in the field including maintenance, their main function is the drilling of new wells. Ed King, a petroleum economist with the state Department of Natural Resources, said that as a rule of thumb each rig working in a producing field on the slope can be expected to drill about 12 new wells per year. 

Typically about half of them are producing wells and half are injectors to put water or gas back down into the reservoirs to aid production of oil.

Each pure production well typically adds 700 to 1,000 barrels per day of new production, which helps offset the natural decline of the fields.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

 

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