Grab a drilling rig while you can -- or order one built -- because the second new player to target oil in North Slope source rocks plans to drill as many as six evaluation wells next winter, two on each of its three lease blocks.
But before it puts together a drilling and testing program, Royale Energy Inc. has to decide on the best partner for its northernmost venture. Fortunately, it says it has several to choose from.
The San Diego-based company was high bidder on more than 100,000 acres in the state's Dec. 7 North Slope lease sale.
The acreage has some conventional oil potential in the western block of leases, which could result in "cooperation with other North Slope explorers," company executives told Petroleum News.
But Royale's focus is on what company Co-President and CEO Stephen Hosmer calls its "promising, hand-picked acreage for oil-rich shale."
Royale was founded in 1986 and has 23 full-time employees. The company has been recognized by Oil & Gas Journal as one of the 20 fastest-growing producers in the U.S. It has an unconventional view, Hosmer said, on the locations and migration pathways of the oil that escaped northern Alaska's source rocks, making its way into the region's world class reservoirs, including the giant Prudhoe Bay field.
"Our view would surprise many geologists working the region," he said.
The company's unconventional concept is not based on idle speculation, but rather years of study and discussion led by Mohamed Abdel-Rahman, Royale's vice president for exploration and production, who joined the company about five years ago, Hosmer said.
While employed by BP predecessor Sohio in Alaska, Abdel-Rahman headed up the post mortem on the famous 1983, $1 billion, Mukluk well in Harrison Bay. The most expensive dry hole in history, operator Sohio and its partners expected the well to encounter a massive oil pool, but all that remained was extensive oil staining and residual asphalt-rich heavy oil.
Abdel-Rahman had been working for Shell in the Atlantic on offshore leasing before joining Sohio. He was ultimately named Alaska district geologist for the company.
"I went to work for Sohio in San Francisco in 1982. I started as area geologist for south Alaska. Then I became district geologist for the whole of Alaska. That's when I was picked to head the Mukluk task force . . . . to do a technical evaluation . . . to determine what really went wrong," he said.
After Mukluk was drilled, "everybody in Sohio and in the industry was in a total shock. ... I had not worked Mukluk as a prospect but moved into the position of statewide geologist as it was being drilled," Abdel-Rahman said, so he didn't have a personal stake in the task force's conclusions.
Both a geologist and a chemist, Abdel-Rahman said, he has always uses chemistry as much as possible. At the time it was not fashionable to talk about biomarkers -- organic compounds characteristic of the organisms from which the oil is generated -- "but we did biomarkers work in Mukluk and compared it to all the other oils that had been discovered on the North Slope. We found an astounding match of the Mukluk oil and Kuparuk oil. ... In my view there is no doubt that the Mukluk oil went to Kuparuk."
It was from the Mukluk drilling review that Abdel-Rahman developed his unique viewpoint about the locations of the source rock that "charged" Prudhoe Bay and other North Slope oil fields, Hosmer said.
The latest North Slope lease sale "presented us with an opportunity to secure a position along the heart of the oil window, of the source rock itself. We chose leases for their thermal maturity for oil," Abdel-Rahman said.
Royale took 60 leases in three blocks: Two of the blocks adjoin Great Bear's acreage to the east and southwest; the third block is farther west along the Colville River.
Royale was bidding against Great Bear on some acreage and against Armstrong's 70 & 148, in other areas.
"Everything we picked is optimum for oil generation -- in all three shales," Abdel-Rahman said, referring to the North Slope's three stacked source rocks.
The assumption has been that Great Bear tied up the best acreage for shale that was liquids rich, but when asked about that, Abdel-Rahman was reluctant to discuss the difference between his model and acreage choices and that of Great Bear President Ed Duncan.
"I would rather talk about our acreage," he said. "Let me put it this way: Had all the acreage been available and no acreage taken we would have picked up more acreage but we would have still chosen the acreage we did."
Before any well drilling occurs Royale has to decide on a partner.
"We're hoping to move into technical design so that we can get into drilling phase next winter," but for that the company will need a partner with expertise in designing wells in shale plays, Hosmer said.
Royale is considering several potential partners, both oil companies and oil field service firms, Abdel-Rahman said.
So why Alaska, when there are proven shale plays in the Lower 48?
"Part of what led us to the choice was it coincided with out move back to the liquids, away from natural gas," Hosmer said.
According to its website, Royale markets about 15 million cubic feet a day of natural gas from conventional gas wells in California's Sacramento and San Joaquin basins. The company also has interests in Utah and Texas.
Hosmer and Abdel-Rahman want to get in on the ground floor for producing oil from Alaska shale.
"We had been contemplating it for many years, discussing Mohamed's concept for the North Slope, and we have a West Coast orientation. We shy away from mid-continent exploration, so Alaska was a natural for us," Hosmer said.
"We were caught by surprise when Great Bear Petroleum took that much acreage (500,000 acres in the October 2010 state North Slope lease sale). It forced us to move quickly," Hosmer said.
Royale's executives would have liked "more time to get rigs in place, internal infrastructure ready, but we had to move on it this year," he said.
"We are very excited about our land position; it's just a tremendous position," Hosmer said.
"The challenge," he said, "is not whether there is oil, but whether or not the oil is going to be extractable economically."
Many oil provinces have "prospects that have lower risk than Alaska, but much, much lower rewards. The potential reward in Alaska is huge. No other shale opportunity comes close to this, not only in the Lower 48 but in other parts of the world that we can access. This is a prime shale play," Abdel-Rahman said.
By KAY CASHMAN
Petroleum News