Anchorage Daily News

Pioneer Natural Resources said production facilities for its new North Slope field called Oooguruk are complete and development drilling has begun: "A 15-well program is planned for 2008, consisting of disposal, injection and production wells, with first oil sales from Oooguruk expected midyear."

Oooguruk, offshore north of the Kuparuk River field, is being developed from a gravel island, with oil coming to shore in a buried subsea line and then going on to Kuparuk in a pipeline raised above the ground.

Pioneer has proposed to the state to produce from two pools.

The deeper Nuiqsut reservoir, at about 6,400 feet, is the primary resource, with 250 million to 300 million barrels of original oil in place. Pioneer expects to produce 37 million to 90 million barrels of oil, through primary recovery or by pushing extra oil out by water-flooding the reservoir or other techniques.

The Kuparuk reservoir, 6,100 feet deep, has an estimated 15 million to 25 million barrels of original oil in place. Pioneer expects to produce 4 million to 8 million barrels from it.

Greg Sanders, a Pioneer petroleum engineer, told Alaska Oil and Gas Commissioner Dan Seamount that there are risks at Oooguruk, including production of the wells. While a vertical exploration well was tested, Sanders said, Pioneer doesn't have production results from long horizontal wells, which all of its production wells will be.

The faults are also a risk. There are a number of faults in the area, but Sanders said there are probably faults that aren't visible on seismic tests, which could affect communication between injection wells and those that produce oil. Good communication, he said, is paramount to long-term value.

All the wells will be parallel to major faults, said Pat Foley, external affairs and land manager for Pioneer Natural Resources Alaska.

A DEAL AT KUPARUK

Oooguruk oil will be processed initially at the big Kuparuk field to the south, but Pioneer hasn't completed a deal yet for that processing. Negotiations with the Kuparuk oil companies are "private and confidential," Foley told Commissioner Cathy Foerster at a recent hearing, in response to a question about the status of the agreement.

Foley said the negotiations began well over two years ago. He said he is "shocked" that there isn't a signed agreement in place today but told the commission only a single issue remains and the parties are "extraordinarily close" to an agreement.

Changes need to be made in the agreement in response to the state's recent tax changes, and Foley said he hopes there will be a signed agreement in the first quarter of next year.

He said the Oooguruk agreement will be similar to published facilities-access agreements, but goes into more detail. Those published agreements were between Prudhoe Bay and Kuparuk owners, he said, where there was common ownership. There is no common ownership between the Oooguruk owners -- Pioneer with a 70 percent working interest and Eni Petroleum US with the rest -- and the Kuparuk companies: Conoco Phillips, BP, Chevron and Exxon Mobil.

Asked by Foerster if the facilities-sharing agreement was workable or onerous, Foley characterized it as relatively fair and reasonable .

The largest issue for a new player on the North Slope is back-out costs, he said.

Back-out costs are the result of constraints on water- and gas-handling capacity. As fields mature, crude oil contains more water and gas, and the facilities that handle the water and gas are at maximum capacity. Current owners charge a back-out fee because they have to cut back on some of their own production to allow new oil to be processed. Foley said the calculation of that is imperfect, but said the agreement does a "fair and reasonable" job.

Foerster noted that Pioneer is the first to request facilities access and then go into production. While other facilities-sharing agreements have been reached, none has been implemented. This will be the first time production will occur using such an agreement.

Foley said the expectation is that the Oooguruk deal will be the model for future facilities-access agreements on the Slope, making it easier to reach agreements later.

Commission Chair John Norman said legislators have asked the commission about facilities access and noted there is a bill pending that would make the commission the referee for such agreements.

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