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Caelus hopes to extract millions of barrels of oil through North Slope fracking

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published May 1, 2015

State officials hope North Slope newcomer Caelus Energy Alaska can crack the code on a tricky oil prospect along the Arctic Ocean and lay the groundwork for similar opportunities scattered across the region.

Success at the Nuna field west of Prudhoe Bay, where Caelus will employ fracking techniques developed in the Lower 48 shale boom, could have widespread benefits if lessons learned can be applied to other fields with oil trapped in "tight" rock with little porosity, state officials said.

"The ability to develop these successfully will open up lots of opportunity on the Slope," said Mark Myers, natural resources commissioner. "The total play could well be in the billions of barrels of additional oil."

State officials say the Nuna field alone might contain 1 billion barrels, though only a fraction of that is expected to be produced from dense sections of sandstone scattered a mile below ground.

Drillers won't employ the "big fracks" seen in the Lower 48, said Casey Sullivan, Caelus public affairs director.

Still, the company plans an aggressive fracking program -- for the North Slope anyway -- including using record levels of water and ceramic grains, called proppant, to help crack and prop open rocks to release oil.

Caelus recently committed to funding the $1.5 billion project, following a deal approved early this year that lowers the state's take of royalty oil until Caelus reaches $1.25 billion in gross revenues.

In March, the company sent the natural resources department paperwork showing it had authorized spending for $480 million. It said it is preparing to authorize another $800 million.

The notification came three weeks before the state's deadline.

"We're bullish on Alaska," said Sullivan.

The Dallas-based company is investing heavily on the Slope, including acquiring the most acreage of any company in the state's lease sale last fall.

Nuna is the company's first gamble. It sits above the Torok formation, considered a complex reservoir that's part of what state officials call the North Slope's "second tier" of oil field development.

The oil in that group is trapped in dense rock, making it harder to access than the state's "first tier" of enormous fields, such as Prudhoe Bay, which has yielded billions of barrels but has been in decline for decades, officials said.

"These lower-quality reservoirs are abundant on the North Slope," said Myers.

Just how abundant is unknown -- they've never been thoroughly assessed, he said.

Technology that has evolved in shale-oil regions like the Permian Basin in West Texas -- including horizontal drilling and advanced fracking techniques -- could make the difference now, said Myers.

"It opens plays that 20 years ago people would not have been able to produce. Now we can," said Myers, former director of the U.S. Geological Survey.

But will those reservoirs yield enough oil to pay for themselves?

Caelus may soon have clues. And under the deal with the state, it will have to share what it learns.

"Two years after production we have to send to the state a report showing some of the ways we have solved the puzzle -- hopefully we solve the puzzle -- and hopefully that will help other producers too," he said.

This winter, workers laid down a 22-acre gravel drilling pad and 2-mile access road extending from existing Slope development. The project required 27,000 truckloads of gravel hauled from a mine, enough to cover about 1,200 football fields, said Sullivan.

Next steps will include installing vertical support members and the pipelines they'll support, as well as drilling facilities, he said.

Under the deal with the state, Nuna must start producing oil in fall 2017. At its peak, the field is estimated to yield 15,000 to 20,000 barrels of oil daily, adding to sagging production that is contributing to the state's multibillion-dollar deficit. Fewer than 200 million barrels flowed down the trans-Alaska pipeline last year, about one quarter of the amount moved in 1988.

The plans at Nuna are unique in part because Caelus will inject 2 million to 3 million pounds of proppant.

That amount of material will be a record for the Slope -- where no more than 500,000 pounds is often used -- though it's far short of the 10 million pounds of sand and water often used on Lower 48 wells to access shale oil, said Sullivan. The work will also involve fracking both injection wells and production wells, an approach that has also not been tried on the Slope.

The reservoir will present challenges, said Paul Decker, a state petroleum geologist. For one thing, layers of sandstone are scattered among sections of silt and clay that don't contain oil.

The fracking must essentially connect the dots, linking up enough layers of sandstone to produce sufficient oil.

"You're trying to enhance the connectivity of the thin sand(stone) zones and allow those to flow fluids between the wells," said Decker. "If you can't frack the entire height of the reservoir, it's not as effective."

Also uncertain is how much oil will be recovered with waterflooding, the process of injecting seawater into the fractured rock to push oil to producing wells, he said.

"You'll never get the full billion barrels," Decker said. "The question is do we get 5 percent or 30 percent?"

Caelus arrived in Alaska in 2013, paying Pioneer Natural Resources $550 million for the already producing Oooguruk field and other assets.

Caelus has taken steps to improve its performance at that field after getting fined by the Alaska Oil and Gas Commission for violations that included failing to report a pressure communication in a well in spring 2014. In worst-case scenarios, a pressure communication can lead to a dangerous pressure increase and explosion, said Cathy Foerster, AOGC commissioner. The company took action to fix the problem and paid the $115,000 fine.

"They've done a great job," she said. "They determined the root cause of the problem, put in place fixes, and didn't have any qualms about paying the money."

Last fall, the company was the biggest bidder in the North Slope lease sale, picking up 325,000 acres, some near Nuna and another group on the Slope's eastern side, after writing a $15 million check to the state.

Those fields are thought to pose geologic challenges similar to Nuna's, said Sullivan. The company has been conducting 3-D seismic tests to determine oil potential at those sites.

"Caelus is very optimistic about Alaska and we're putting money where our mouth is," he said.

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