Some might find it intriguing that a Papua New Guinea-based company known for its role in the PNG LNG project and being operator of all of the country’s producing oil fields would find its way to Alaska.
But the North Slope of Alaska, which contains some of the largest oil and gas fields in the United States along with more than 2 billion barrels of petroleum reserves by U.S. Energy Information Administration’s estimates, proved alluring for Oil Search Ltd. (ASX: OSH).
“PNG is a very gas-prone country; there is not much oil,” Ann Diamant, general manager of investor relations and communications for Oil Search, told Hart Energy. “So we really wanted some more oil in the portfolio to balance ourselves out.”
The company, which in 2017 exited high-risk operations in the Middle East where it operated in the Kurdistan area of Iraq, considered about 200 different opportunities during its global search for oil assets worthy of investment. Alaska’s Nanushuk play rose to the top, Diamant said, after Repsol mentioned its partner Armstrong Oil & Gas, which struck oil at the Horseshoe prospect in 2017 and extended the Pikka Unit play, was looking to pare down its stake in the assets.
“The more we looked at the asset the more we like it,” Diamant said. “While it was a bit left field from a corporate strategy point of view, we felt very strongly that it was a really fabulous asset and there was lots of potential upside. It was exactly what we wanted in an oil asset to balance our very gas-rich portfolio.”
In February 2018, Oil Search closed its acquisition of half of Armstrong’s interest in the conventional Pikka Unit, Hue Shale and Horseshoe Block for an initial price of $400 million. The company also has an option through June 2019 to purchase the rest for $450 million.
Since the acquisition’s close, the company has increased the potential of the Pikka Unit Nanushuk development and the Horseshoe extension. There could be an additional 250 million barrels (MMbbl) at Pikka and another 300 MMbbl at Horseshoe.
“It’s turned out better than we thought,” Diamant said.
As the company prepares for more drilling in Alaska and grows its 50-person team in Anchorage, Alaska, Diamant shared more insight—which has been edited for length and clarity—with Hart Energy about Oil Search’s plans for its Nanushuk area assets. Focus in the near-term will be on the Pikka Unit development.
Hart Energy: What exploration and appraisal work do you plan to carry out in this area in 2018-19?
Diamant: The focus for the company until the end of the year is to continue to build our expertise through hiring experienced people as well as preparing for the drilling program. The drilling program is going to focus on the Pikka Unit. We’re planning to drill two wells—each with two penetrations—so there will effectively be four penetrations into the field. We’re looking to prove up the resource. At the moment we carry a resource size of 500 MMbbl in the Pikka Unit. But with these two wells we’re hoping they will prove the reservoir is continuous through the Pikka Unit. We’ll also look at how well these wells can produce. That will help us put the final touches on moving to the next phase of the development.
Hart Energy: Have you determined about how much it could cost to develop these resources?
Diamant: When we first acquired the asset I think we had an estimate of about $4 billion for the development. But we’re having a really good look at those capital costs, particularly the cost of drilling. We’ve been fairly conservative in terms of assessing those costs, but you never really know until you move into FEED (expected in 2019). We are talking with ConocoPhillips (NYSE: COP) because it has assets very close to our assets. Certainly, there is potential to work cooperatively and potentially reduce our capital costs. We’re engaging with ConocoPhillips on a very cooperative basis.
Hart Energy: Oil Search has also mentioned that it is sharing data with ConocoPhillips. What kind of data are you all sharing?
Diamant: We had a well trade agreement to share data from some of our wells in exchange for the Putu-2 well information. That was the thought process. Putu-2 is in close proximity to our Pikka Unit well. We’re encouraged with the relationship we’re developing with Conoco and our ability to share and potentially work together.
Hart Energy: Have you decided which drilling and completion technologies you plan to use?
Diamant: Not entirely. We know that we’re going to do long laterals but specifically, that is something we are working on at the moment. That’s an area that we could potentially save some money. Any information we get from the drilling program will also help us to determine how we ultimately recover oil from the fields.
Hart Energy: Have you identified any additional prospects, and are you planning to drill any prospects in 2019?
Diamant: We’ve highlighted a whole range of opportunities on an exploration and appraisal basis, and that will be considered for the 2019-2020 drilling program. But as of yet, we haven’t decided exactly what we’re going to drill. We have decided not to do any exploration in the 2018-19 drilling season. But it’s likely that we will be drilling a number of wells in the following season; we haven’t confirmed exactly what and when. But we’re very excited about the opportunities and potential exploration upside not just in the Horseshoe area but in all of our leases.
Velda Addison can be reached at firstname.lastname@example.org.