Smith Bay is 125 miles west of Oooguruk and ConocoPhillips’ Alpine Field, in state waters just 4 or 5 feet deep. Caelus has a 75% interest in 117,000 gross acres.

Jim Musselman has seen some of the most extraordinary well logs in the industry— and not once, but several times over, from Alaska most recently to offshore Ghana and offshore Equatorial Guinea, to onshore Colombia.

Last fall the CEO of Caelus Energy Alaska LLC announced finding what could be a more than 6-billion barrel (Bbbl) oil field in shallow state waters off the North Slope.

“Exploration is in my heart and soul. Our team is made up of naturally curious people, and we don’t necessarily take conventional wisdom to heart,” he said. “We kind of follow major companies that take broad looks at big structural closures, but then have walked away.

“We are climbing higher up the fruit tree because the lower-hanging fruit is already picked over. Certainly part of it is technical too, because the high-resolution 3-D allows us to image these turbidite fans that people couldn’t see before.

Consider the Musselman track record: First, he managed development of the multibillion-bbl Cusiana-Cupiagua complex in Colombia for Triton Energy Corp. once he became the new CEO of that company in 1998. At one point it was flowing 315,000 bbl/d, the biggest field onshore Latin America. It was his first foray in being an operator, as he was an oil and gas lawyer by trade.

Next, Triton ventured to Equatorial Guinea, signed a production sharing contract and found the Ceiba Field in 2,400 feet of water.

Announced in October 1999, it has produced some 650 million barrels (MMbbl) to date and is still operated by Hess Corp., which acquired Triton for $3.2 billion in 2001, shortly after the field was dedicated in a ceremony by the president of Equatorial Guinea. The deepwater field was noteworthy for going from discovery to first oil production in 2000, a record time of 14 months. He refurbished a tanker, making it into an FPSO for the field.

Next came Musselman’s biggest success. After his Triton non-compete ended, he and some associates on the team founded Kosmos Energy Ltd. with backing from Warburg Pincus and Blackstone. In 2007 they struck again, finding the billion-bbl Jubilee Field offshore deepwater Ghana.

“To look at that log—a thousand feet of gross section and sand after sand—it was thrilling,” Musselman said. It was offshore Africa’s biggest find in a decade.

First oil was achieved in record time again for this more complex field, this time in just under four years, despite a string of hurdles that might have stopped someone else cold: Kosmos had some disputes with the government and its private equity backer, and there were accusations of flouting the U.S. Foreign Corrupt Practices Act—not to mention the saga of getting enough capital and equipment to the right place, on time, to get to first oil.

Along the way, however, the field’s worth was proved. ExxonMobil, CNOOC and the government of Ghana each tried to buy out Kosmos’ stake in the field, once for as much as $5 billion. It did not sell. Also along the way, Musselman was deposed from the company, although he is still a large shareholder.

Smith Bay

But that was then and this is now. Not one to retire, Musselman geared up for more adventures. Caelus was the outcome, backed by Apollo Global Management.

In April 2014, he acquired the North Slope operations of Pioneer Natural Resources Co., which became his entree to the state. Caelus has since doubled production and reserves, taking reserves at Oooguruk Field up to about 150 MMbbl. Some 40 wells are there; 20 have been fracked. His Nuna Field is shovel-ready after Caelus drilled four wells, but it needs more capital for full development to get started.

And finally, Caelus has 350,000 acres between Prudhoe Bay and Point Thompson with two drillable prospects on the acres.
His latest endeavor in Alaska, Smith Bay may be just as big, or bigger, than anything he’s done yet, but it’s still early days, just getting off the ground. The 6-Bbbl find needs to be tested and delineated, but Musselman thinks 2 billion are recoverable. But this is a long-term project that will require billions of dollars and new farm-in partners. It will entail dealing with the enormous logistical challenges operators face in Alaska, although Musselman and team have met those kinds of challenges before.

“Look, I’ve frankly done harder things than this. Jubilee was in deeper water and more complex. This is imminently doable because I’ve been blessed with having such good people who roll up their sleeves.”

The good thing about running a smaller company, Musselman said, is that things are done without a lot of bureaucracy. “When we acquired Oooguruk from Pioneer, they had about 100 people and 75 of them came with us. They know the rocks and how to get things done. We don’t get bogged down in the process, we just go do it. It may sound silly or too simple, but we get things done.”

Luckily, the geology here is not the problem, given that Caelus has two wells down, each with at least 1,000 feet of gross column in the Brookian formation. The rocks are tight for a conventional reservoir but have much higher matrix permeability than shales and 40 to 45 degree gravity, highly mobile oil which will lead to highly productive wells. Preparations and fund-raising are underway now so that Caelus can spud a third well in the winter of 2017-2018 once the ice in Smith Bay can support drilling operations. The team wants to drill a 2,000-foot lateral and do some fracking to test the formation.

“Smith Bay might not have worked 10 years ago. You didn’t have the technology we have today,” Musselman said. “There’s a lot of oil in place but the question is, how do you get it out of the ground? We need flow rates to determine the economics of development, so hopefully we’ll flow it 10 or 12 days, then plug it and come home.”

For the first two wells, Musselman was in Caelus’ Anchorage office getting direct feeds of the logs there. “I also went out to the well site, which was quite lonely [75 miles from Barrow], although about 150 people were living up there in the man camps. It was quite an endeavor. We had to use those big C-130 Hercules planes to bring in things.”

Some 140 truckloads of equipment have to be barged out to an old DEW Line station with a gravel runway where staging takes place. The rig for the third well goes out in the late summer so that it can be readied for work in January or February, once the ice is formed.

Success in the oil and gas industry derives from a rich mix of skill, luck, daring and good rock. Persistence is what binds it all together in the face of bad luck and setbacks. Musselman is one of the few who’ve made a huge mark. He’s the first to admit he’s had an extraordinary run of luck during his 40-year career.

He’d be the first to tell you it wasn’t him, it was the extraordinary team around him, led by geologist Alan Hough, who led his exploration team at Triton Energy, and geophysicist Kenny Goh, who also has been with him since he ran Triton in the 1990s.

A slide deck ‘aha’ moment

Caelus came upon the Smith Bay opportunity through a private company, NordAq Energy Inc., in 2015. NordAq had acquired the state-water leases and shot 3-D seismic, hoping to drill in the winter of 2014, but it just couldn’t get it done, and so it came to Caelus and pitched a farm-in. Caelus took the deal in May 2015 and started working up the science and logistics on it. Caelus took 75% working interest in the well and carried NordAq. Caelus didn’t get out on the ice until January 2016 for drilling the two wells. The company completed the drilling program by mid-April.
“To get two wells down was a remarkable thing. It was extraordinary.”

Musselman recalls NordAq’s original pitch on Smith Bay with amusement and amazement.

“We went into their conference room and the title slide of their presentation was already up on the screen. It said, ‘Jubilee Lookalike.’ So I guess they knew their audience. It was kind of clever, but they had me at hello. Kenny Goh was with me and he was all over it. It was the most amount of oil they’d seen in their career.

“These plays are very similar to Jubilee Field in that both are turbidite fans that look similar to the seismic we saw in Ghana. When we first saw the NordAq presentation, we all said, ‘Wow, this is a laydown to Ghana but is actually bigger!’”

Caelus thinks Smith Bay is going to be roughly 1.8- to 2.4 Bbbl of recoverable light oil. “It could be bigger than that once we get our science done. But it’s certainly big enough to get phase I developed,” Musselman said.

His biggest job now? Securing the dollars that will be needed. “I tell my guys that bad old joke: We’re like the dog that chased the bus and we caught it, so now what do we do? But it’s a high-class problem to have.

“The hardest thing I do is round up capital because it’s a pretty expensive thing we’re doing here. Apollo has been very good, they like what we’re doing, but we’ve sort of outkicked or out run their commitment. This is going to be $6- or $8 billion over a five-year period, so we’re talking to a lot of people and trying to get them to come in. I think we’ll get them because this is such an exciting project.

“But it is a little daunting. There’s a lot of environmental impact studies and engineering that has to be done. We’re talking to bigger companies with bigger balance sheets and to a number of private equity people. This could possibly be a public company one day as well. We’re going to need that level of capital going forward.”

The capital-raising issue has been complicated by low oil prices and declining production that have played havoc with Alaska’s oil-dependent budget. Gov. Bill Walker’s veto of incentive payments earned by Caelus and other operators threaten every company’s plans. Hundreds of millions of dollars are at stake. Caelus has estimated it has earned as much as $200 million in incentive payments alone which represents a fraction of the company’s overall dollars invested for work that’s already completed, dollars already gone to conduct seismic, drilling and other activities.

When Walker unveiled the 2017 state budget in February, the oil and gas tax credit line item was at the statutory minimum, leaving a growing obligation. Lawmakers are again trying to amend the tax system, including reducing many if not all development incentives, and the oil industry is fighting to keep a system that competes for investment dollars.

Optimism abounds

Still, Musselman may be a typical wildcatter full of optimism and high hopes. He is certainly one who has been extraordinarily lucky. “I’m way too much of an optimist and it gets me in trouble sometimes,” he admitted. “I’ve had my share of things that blew up and hit me in the face, but you always have to be positive, work hard and just try to keep things moving forward.

“I always think good sense prevails in the end, and people will do what they have to do. I’m happy. I stay busy. I just keep plugging away.”

Musselman grew up in tiny Albany, Texas. Noted oilman A.V. Jones was an early mentor and business associate. With him and brother Jon Rex, Musselman formed a Texas crude oil gathering business that ended up being very successful, eventually bringing in $1 billion in revenue annually.

“A.V. was always so encouraging to me. If he were younger, he’d be doing the same things I’m doing now—he has that same level of curiosity I’ve got. I’d sit and listen to him talking about geology when I was much younger, which was how I learned the business, since I’m not formally trained in geology.

“My mother’s thought was for me to go to law school, [which he did at the University of Texas], then come back and be the county attorney and run the ranches. My dad always just encouraged me to do things.”