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Delta drilling: Arco and others look to the North Slope's Colville Delta to provide the oil to keep the pipeline flowing.

The central North Slope is a beehive of drilling activity this winter, confirming industry's growing interest in the region. In the Colville Delta, in particular, recent oil discoveries have raised the hope of uncovering enough oil to help stem the tide of declining Alaska production.

While it's unlikely the Colville Delta holds a giant reservoir, its close proximity to existing facilities at Kuparuk, the country's second largest producing field, means even several small discoveries in the area could justify the high cost of developing oil fields in the Alaska Arctic.

Arco Alaska, the operator and largest shareholder in the 300,000-plus barrel-a-day Kuparuk field, is investing a considerable amount of time and money in the Colville. Along with fellow lease holders Union Texas Petroleum and Amerada Hess, it formed the 90,000-acre Kuupik Exploration Unit to expedite the search for crude oil.

Based on the large number of exploratory wells that have been drilled and are being drilled in the Colville Delta, industry observers believe a commercial discovery may be in the offing.

Arco and its Kuupik partners should have a better idea of the delta's oil potential after analyzing results from a three-well program being conducted this winter. The drilling was spurred by two non-commercial discoveries announced by Arco last December.

Fiord No. 1 and Kalubik No. 1, drilled a year ago, each tested productive from two intervals. The depths of the oil zones were not released, but Fiord was drilled to a total depth of 10,300 feet and Kalubik to a depth of 8,300 feet. Peak flow tests ranged from 1,065 barrels a day in Fiord to 1,200 barrels a day in Kalubik -- about the same rate generated by producing wells in the Kuparuk field, located roughly 10 miles east of Arco's Kuukpik Exploration Unit.

"We're looking for sufficient reserves to justify putting in a central processing facility west of Kuparuk," explains Jim Davis, Arco's senior vice president for Exploration and Land. He adds, "These (new) wells will help in evaluating the potential of the area and lead to a better understanding of previous drilling."

Subtle Plays

Although Arco is leading the current charge on the Colville Delta, it is not the first oil company to have tested its subsurface geological features. In fact, various companies have drilled more than 10 exploratory wells in the region since the early 1960s. In 1985, Texaco announced the first Colville discovery in what's now the Arco-operated Kuukpik Exploration Unit. That well tested at 1,075 barrels a day.

It's just that in the earlier days of Alaska exploration, companies were primarily focused on looking for oil accumulations of sufficient size to justify the cost of development. The 1968 discovery at Prudhoe Bay -- the motherlode -- made it possible to finance the 800-mile trans-Alaska pipeline and the enormous infrastructure necessary to develop smaller North Slope fields, such as Kuparuk, Lisburne, Milne Point and the offshore Endicott reservoir.

With most of the larger, more obvious prospects explored, the focus in recent years has been on the more subtle plays in and around existing oil fields -- add-ons that can quickly turn a profit. Companies who've been around the longest -- Arco, BP Exploration (Alaska) Inc. and Exxon -- are in the best position to capitalize on their experience and accumulated knowledge of what oil may still be trapped in the highly complex geological structures that underlie Alaska's North Slope.

Mark Myers, state petroleum geologist says, "If you have facilities and a lot of data over an area, you are in a better position to explore things that might not be commercial for someone else. Sometimes it's not how much oil you find; it's what the production costs are."

Because the delta's subsurface geology is complex and highly faulted, it could be that oil is trapped in several pockets, compounding the problem of finding enough pools to bring the area into production.

"I think they are beginning to understand fault patterns. Maybe they figured out that there isn't one giant oil field below and that's why it's going to take lot of wells, a lot of exploration," says Ken Boyd, deputy director of the state Division of Oil and Gas.

Adds Richard Kornbrath, a state petroleum geologist, "Companies have learned that it's not only important to get a large number of wells drilled, but also to get as much data from those wells as possible. That will give you more clues as to where to look for another pot of (oil-bearing) sand."

Getting the Knack

Over the years, Arco has developed a knack for finding commercial quantities of oil in places where others couldn't. The company's most significant Alaska discoveries -- first Swanson River on the Kenai River and later Prudhoe Bay -- firmly established Alaska as a leading oil state that now generates roughly a quarter of the U.S. domestic oil supply and more crude -- 1.7 million barrels a day -- than most of the 13 nations that belong to the Organization of Petroleum Exporting Countries (OPEC).

Since last year, Arco has been busy solidifying its land position in the Colville Delta, strongly indicating the company has more than just a passing interest in the area's overall potential as an oil domain.

The company began its latest blitz in October when it announced a major property swap with Unocal, involving the exchange of Arco property in the Cook Inlet for 15 to 20 Unocal leases just west and south of the Kuparuk field. As an Arco spokesman explains, "We saw an opportunity to pick up some attractive exploration properties on the North Slope."

Then, just prior to last December's Kuparuk Uplands Lease Sale 75, the state withdrew some 23,000 acres of prime Colville tracts under an agreement that allowed Arco, BP and Chevron to keep their leases from expiring, provided they drill a number of exploratory wells on the property over the next five years.

Arco's domination of Sale 75 further demonstrated the company's intention to secure its position in the Colville. The company overwhelmed its competitors, winning 43 of 55 tracts sold. BP, which also holds a substantial interest in the nearby Kuparuk field, captured eight parcels in the sale.

Observes Boyd, "Arco and BP have more knowledge about what's in the Colville area, and it's a logical stepout from the Kuparuk field."

Problems -- and Rewards

If additional drilling proves enough oil is present to move ahead with development, companies still will face engineering problems on the delta, as well as federal restrictions that protect the nation's wetlands. As one industry observer points out, "You're right in the middle of a flood plain of a major river delta system."

And about a third of the Kuukpik Exploration Unit is located offshore in the Beaufort Sea, requiring sophisticated and expensive drilling technology to reach any oil.

As Kornbrath says, "There are just too many unknowns. It's not just that there is oil in recoverable quantities, but can it be commercial? What is the impact of environmental regulations on getting that oil across the delta to the Kuparuk facilities? You're talking about a very big job and a lot of problems."

Nevertheless, both the industry and the state are optimistic about the region's potential. In fact, the Alaska Department of Natural Resources (DNR) is planning to put the remaining 20,000 acres of Colville acreage on the auction block in September.

Jim Eason, director of DNR's oil and gas division, says, "It's the old horse and water trick. We've led the horses the best we can out to the Colville Delta, and we're hopeful they will find something productive there. But the jury is still out on whether or not they're going to find one or more commercial fields."
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Title Annotation:Atlantic Richfield Co.
Author:Tyson, Ray
Publication:Alaska Business Monthly
Date:Mar 1, 1993
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