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Energy

Overlooked North Slope formation may hold 120,000-barrel-a-day secret

  • Author: Alex DeMarban
  • Updated: September 12, 2016
  • Published September 11, 2016

Geologists say a potential major oil discovery in Alaska, coupled with a state geological analysis released this summer, indicate that an often-overlooked rock formation on the North Slope may hold significant potential for future oil discoveries.

Those experts have long known that the sandstone in the Nanushuk formation, an underground layer of rocks deposited from eroding mountains about 100 million years ago, had the qualities for oil and gas.

But while the Nanushuk has been penetrated by dozens of wells — the formation is one of the first rock layers that a drill bit pierces in the National Petroleum Reserve-Alaska — longtime geologists say decades of drilling has led to only minor discoveries.

That changed last year when Spanish company Repsol and Armstrong Oil and Gas of Denver announced that they had found what experts say might be one of the largest oil discoveries in Alaska.

The new field, about 150 miles southeast of Barrow along the Colville River, and located between ConocoPhillips' Alpine and Kuparuk River fields, could produce at least 120,000 barrels of oil daily, according to estimates and data verified by a top engineering firm.

Armstrong calls the project Nanushuk, the same name as the rock formation holding the oil. The plan is currently under environmental review by the U.S. Army Corps of Engineers. It will take at least five years before oil production begins, if permitting and financing efforts are successful, officials say.

"There are not that many discoveries like this made in the world," said Mark Myers, former head of the U.S. Geological Survey and the Alaska Department of Natural Resources.

In 2015, before his retirement early this year as DNR commissioner, Myers saw the companies' well logs for the Nanushuk discovery, allowing him to grasp its potential.

"Armstrong has found a lot of oil," he said.

The discovery is significant because it shows that in addition to Nanushuk's high-quality sandstone reservoir — containing the pores and spaces that hold oil — shale in the formation seals off the oil and prevents it from migrating to the surface.

"The Armstrong-Repsol discovery changes the play — the understanding of that geologic potential — because now we know on a large scale there's a seal to that reservoir at least in places, so oil can be trapped in very significant quantities," Myers said.

The Nanushuk formation is one of the rock layers beneath the North Slope. It is not present in Prudhoe Bay where most wells have been drilled in Alaska, but the formation sprawls across the central and western portion of the North Slope.

Near Smith Bay about 50 miles southeast of Barrow, it's about half a mile thick and rises to the surface. There, oil oozes onto the tundra. In 1923, the seeps helped lead to the creation of the Indiana-sized petroleum reserve by President Warren G. Harding.

Despite the seeps, drilling by the federal government — the reserve provided a potential oil warehouse for U.S. Navy ships after World War I — did not lead to significant oil discoveries.

Near the North Slope coast close to the village of Nuiqsut, the portion of the Nanushuk formation where Repsol and Armstrong found oil is nearly a mile underground.

Though the formation extends south to the Brooks Range, its greatest potential for an oil and gas discovery appears to be in the north, said David Houseknecht, project chief for the U.S. Geological Survey's Energy Resources Program for Alaska.

To the south, the formation is buried more deeply so it is also more compressed by the rocks above it, reducing the potential for spaces in the formation that could store oil and gas.

The Nanushuk discovery could be a potential "game-changer" for Alaska if it turns out to be as big or bigger than expected, boosting oil production and state revenue significantly if it can be developed, Houseknecht said.

Houseknecht said confirmation of the well results by the international petroleum consulting firm DeGolyer and MacNaughton gives him confidence the estimates are legitimate.

"To have a discovery this big is really quite a significant event and it's a surprise to a lot of geologists because the Nanushuk was not a formation anyone expected to be the reservoir for a giant accumulation," he said.

The history of oil exploration on the North Slope has been marked by a focus on other rock formations, he said. Initially, companies looked to older rocks associated with the discovery of Prudhoe Bay in 1968.

Later, the industry turned its attention to other formations, including the Alpine formation, created about 150 million years ago, where ARCO discovered the Alpine field that ConocoPhillips now owns.

Because oil companies have typically targeted formations other than the Nanushuk that has reduced the chance of a big discovery there, Houseknecht said.

"If you're looking for older rocks, you would not locate the well in the best position to encounter good sandstone in the Nanushuk," said Houseknecht.

Armstrong and Repsol's discovery could lead to a "new pulse of exploration" targeting the Nanushuk formation, Houseknecht said.

Adding additional evidence to the formation's potential is a state study announced in July highlighting its rock quality.

The Alaska Division of Geological and Geophysical Surveys analyzed data from a USGS drilling project at the village of Wainwright in 2007, more than 150 miles west of the Repsol discovery.

While there's no oil and gas at Wainwright, the Nanushuk rock quality has potential to support oil and gas reservoirs elsewhere on the Slope, division geologists said.

The findings highlight the Nanushuk formation's potential as an exploration target, Steve Masterman, division director, said in a prepared statement.

Bill Armstrong, owner of Armstrong Oil and Gas, said the Nanushuk formation is relatively thin in parts, one reason that companies have not made it a primary target.

But Armstrong and Respsol had high expectations for their Nanushuk field, in part because of the results from older wells not far away.

"Where we drilled it thickened up substantially," he said of the formation.

Armstrong has discovered two of the most recent developments on the North Slope — Oooguruk in 2002 and Nikaitchuq in 2004 — but sold the development rights to Italian company Eni.

In this more recent project, Armstrong has purchased a greater stake, buying out a portion of Repsol's interest to become the majority owner, while Repsol continues to hold 49 percent.

While Armstrong may pursue other partners because of the high costs of development, Armstrong said his company wants a bigger role this time.

"We're not looking to sell our position," he said. "This is kind of the beginning of a new play, and finding a new play as good as this is, in a petroleum and gas environment like the North Slope, is a really good thing."

"We believe there's a lot of running room," he said.

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