The Kuvlum quandary.

If it's not a pot of black gold, does this North Slope oilpatch have enough petroleum to offer "pearl" potential?

Though Arco Alaska's Kuvlum and Wild Weasel prospects in the Beaufort Sea proved to be commercial duds, industry observers here don't expect the bad news to derail anyone's exploration plans for the undeveloped eastern North Slope region.

Moreover, Arco's misfortune at Kuvlum and Wild Weasel isn't the final word on the area's commercial viability, mainly because of the many tantalizing oil prospects still remaining in the area.

"We continue to believe that the exploration prospects in Alaska are as good as anywhere in the world," declares Arco spokesman Ronnie Chappell. "We believe that the eastern Beaufort still holds the potential for a commercial success. We would have liked to have had a commercial discovery at Kuvlum. Even so, we've learned a lot from the wells, and we're still learning."

However, it may be some time before oil companies venture far into the Beaufort Sea, an inhospitable corner of the world that has been unkind to explorers in the past. In fact, Alaska's outer continental shelf has yet to provide a commercial discovery. Of the more than 90 exploratory wells drilled in federal waters, Kuvlum represented the best hope.

Arco, the operator, and partners Union Texas Petroleum, Phillips Petroleum, Total Minatome, Murphy Oil and Mobil announced the Kuvlum discovery in October 1992. At a flow rate of 3,400 barrels a day, Kuvlum represented the largest oil strike ever on Alaska's outer continental shelf.

While the Kuvlum No. 2 and Kuvlum No. 3 delineation wells, drilled last summer to depths ranging from 8,000 feet to 11,125 feet, indicated there was a large accumulation of hydrocarbons present, Arco concluded it was not large enough to justify the high cost of a stand-alone development in such a remote area of the Arctic.

Not only is Kuvlum miles from shore, but it is located beneath a sea that is frozen most of the year, requiring engineering techniques never used before in the Arctic. Kuvlum also is located miles from the North Slope's production nerve center and the trans-Alaska oil pipeline.

Arco says it will spend the winter reviewing drilling data and engineering studies before deciding whether to do more work on Kuvlum, a project which already has cost Arco and its partners some $100 million. Meanwhile, Arco moved six miles south to drill the Wild Weasel prospect, rekindling hope for another large oil strike. It, too, was deemed to be non-commercial.

But Jim Eason, director of the Alaska Division of Oil & Gas, believes Kuvlum is large enough to validate his "string of pearls" theory for the eastern North Slope. He suggests a pipeline system and central production facility could be constructed to handle crude oil from a number of oil accumulations in the vicinity, none of which is large enough to justify the high cost of a separate facility.

Candidates for such a commingling operation in the eastern North Slope area include announced discoveries at Kuvlum, Hammerhead, Badami and Point Thomson, as well as the promising Yukon Gold prospect located adjacent to the Arctic National Wildlife Refuge coastal plain.

According to Eason, "Arco is moving south trying to find one more pearl to put on the string. At the same time, BP Exploration is trying to string pearls in the south with Yukon Gold and in the west with Badami. We hope next year to have a handful of jewels."

Regardless, Eason says, "They are going to keep looking as long as there are prospects to look at and as long as (oil) prices support those looks. There could be more aggressive exploration going on out there. We've seen it happen before."

Eason's deputy director, Ken Boyd, adds that Arco has not disclosed enough geological information on Kuvlum or Wild Weasel to make a final judgment. Arco has only said Kuvlum would require at least one billion barrels of recoverable oil to justify high development in the remote area.

"My observation is that a billion barrels of oil in one place on the earth is pretty hard to find," says Boyd. "You have to have a combination of good rocks and good luck. I think they ran out of both. It's a real disappointment."

On the other hand, adds Boyd, "I get the idea it wasn't just a lack of oil. There's oil there. I'm just not sure whether there was enough oil, or whether the reservoir characteristics were bad, or whether it was a combination of both."

Boyd notes that Arco and its partners wouldn't have spent $22 million on Wild Weasel unless they felt it had some merit. He says, "They don't do this for fun. They have stockholders they are responsible to, and I presume they will have to defend the fact that they drilled this well."

Kevin Tabler, Unocal's Alaska land manager, says that Kuvlum's failure as a commercial prospect will have no affect on Unocal's exploration or development plans in either Cook Inlet or on the North Slope.

"Sure it was discouraging," says Tabler. "It takes a little of the bloom off the rose. But it doesn't condemn the area. The focus now will be on onshore drilling, and we're very excited about it."

Unocal is a partner in BP's Yukon Gold prospect, located just outside the western boundary of the 1.5-million-acre ANWR coastal plan, and also has teamed up with BP this winner to drill the Amethyst field south of the producing Kuparuk River field. Unocal also holds an interest in Hammerhead, one of the "pearls," located about 20 miles northwest of Kuvlum and 20 miles offshore.

"It's probably going to require the stringing together of (several fields) to make this a profitable venture," says Tabler.

Eric Luttrell, BP's vice president for exploration, emphasizes that BP's interest in the eastern North Slope was "in no way tied" to Arco's success or failure in the Beaufort.

"We have looked at the whole North Slope and, clearly, this is an area we find very prospective," says Luttrell. "But people sometimes forget that these prospects aren't without risk."

Chuck Logsdon, the state's chief petroleum economist, points out that Kuvlum would have been a commercial find almost anywhere else in the world.

"I guess the spin on it is that there's oil, they just don't have enough to justify the incredible costs of bringing oil that far offshore to onshore and over to the pipeline," he says. "At least it wasn't a dry hole."

However, Logsdon believes Arco's failure at Kuvlum and Wild Weasel shouldn't affect the company's expressed financial commitment to Alaska.

"They just haven't found the big one out there yet," he says. "But it's a darn shame because the domestic oil industry is flat on its back and in decline. It's just another bit of depressing news in the U.S. oilpatch."