2 heavy oil projects on Alaska’s North Slope are put on hold

By Alex DeMarban, Alaska Dispatch News - October 3, 2016

In the grip of a long-running oil price slump, two Alaska oil companies have delayed major projects designed to take advantage of a huge but little-tapped resource on the North Slope.

But that doesn’t mean efforts to dislodge the thick, slow-moving deposits of heavy and viscous oil are dead in Alaska, state oil and gas officials said last week.

In fact, 55,000 barrels of viscous oil that can flow like maple syrup are being produced each day from four fields on the Slope, as companies use sophisticated horizontal drilling techniques to tap the shallow pools.

“The experimentation continues,” said Steve Moothart, a petroleum geologist with Alaska Division of Oil and Gas. “The companies are continually looking at their well operations, their pump designs, their well designs, to try and optimize and get the most out of these wells.”

State officials have long hoped the oil companies would unlock the puzzle of heavy oil —  it moves more like molasses — and the viscous oil are more costly to extract than the light oil found deeper underground, and which can flow as easily as water.

That light crude has dominated Slope oil production. After 39 years, that production has reached 17 billion barrels and counting.

But heavy and viscous oil, which is believed to have originally been light oil that left the original Slope reservoirs millions of years ago, is seen as far more prevalent.

Experts say the oil fields in northern Alaska contain upward of 30 billion barrels of heavy and viscous oil. But it is costly and difficult to bring up, and only a small fraction may ever be produced.

Unlike the recent shale-oil boom in the Lower 48, where rock-fracturing technology allowed companies to free once-trapped crude from shale deposits, Alaska petroleum geologists say a single innovation isn’t expected to lead to an explosion of heavy and viscous oil production in Alaska.

Instead, increased production of thick crude will likely come in increments, field by field and company by company, with factors such as technology, price and capital playing key roles.

A dramatic increase certainly won’t happen at today’s historically low prices, they said.

Steps taken by two producers in Alaska seem to bear that out.

ConocoPhillips in February said it was deferring a $460 million project to produce viscous oil it had approved in early 2015, before the oil price slump began to have widespread fallout.

Oil production at the site — in the Kuparuk River Unit about 40 miles west of Prudhoe Bay — is expected to peak at 8,000 barrels daily. The first drops of crude were originally supposed to begin flowing in early 2017, in what ConocoPhillips called the largest investment in viscous oil at Kuparuk since 2004.

Now it’s uncertain when that oil will reach the trans-Alaska pipeline.

Scott Jepsen, vice president of external affairs and transportation for ConocoPhillips in Alaska, told the Alaska Legislature in February modules built in Anchorage had been set on-site and wired with power, but drilling is delayed because of low prices.

Natalie Lowman, with ConocoPhillips said on Monday some construction work on facilities has been restarted, using existing money from the 2016 capital budget.

She said drilling is planned in 2018 for now, assuming capital funding for that future work is approved.

The company already produces about 15,000 barrels of viscous oil daily from the West Sak field in the Kuparuk River Unit, Lowman said.

Viscous and heavy oil have “always been technically challenging and expensive to develop,” but the work is even more difficult at today’s oil prices, she said.

The company continues to work on viscous oil “opportunities,” and will advance new projects when they become more economic, she said.

Viscous oil that’s already flowing in Alaska represents about 11 percent of the state’s oil production — a proportion that has grown in the last decade as producers look for new opportunities to replace the dwindling supply of light crude. About 253 million barrels of viscous oil has been produced over the years, or about 1.5 percent of total Slope production.

Stretches of viscous and heavy oil percolated toward the surface eons ago, allowing bacteria to eat away the lighter, more valuable hydrocarbons and leaving behind thicker residual oil, geologists say.

That oil is also more expensive to refine and less valuable than light oil, complicating projects targeting the liquids in Alaska, where the cold climate and isolated conditions already contribute to high costs.

Advances that allow horizontal wells to extend miles, with the ability to steer the drill bit to get the most out of an oil accumulation, have proven critical to viscous-oil extraction, said Paul Decker, a state petroleum geologist.

Half of Alaska’s produced viscous oil is coming from the Nikaitchuq field operated by Italian oil company ENI — the first Slope development focused solely on viscous oil — with some wells stretching 4 miles to tap oil less than a mile below ground.

Three of the 10 longest horizontal wells on the Slope have been drilled at Nikaitchuq. Production began in 2011.

“It’s pushing the envelope,” Decker said.

As for heavy oil, which is harder to extract than its viscous cousin, a single Slope well, from the Ugnu pool, is producing an average 34 barrels daily.

BP in 2013 suspended a $100 million test project to study heavy oil extraction at the Ugnu deposit at Milne Point, estimated to contain up to 20 billion barrels of heavy oil, though it’s anyone’s guess how much may ever be produced.

Called CHOPS — Cold Heavy Oil Production with Sand — the effort involved producing sand along with oil and separating the two at the surface, with the movement of the sand opening up new spaces in the reservoir to help unclog the oil. The project is unique because oil companies typically try to filter out sand that can damage pumps.

Hilcorp Alaska said a year ago it was hoping to restart the test program, but an official also noted it had other, conventional projects to pursue, according to the Alaska Journal of Commerce.

Hilcorp recently began seeking federal and state permission to develop one of those conventional prospects, the proposed Moose Pad, to tap 7 miles of oil reserves at Milne Point, including some viscous oil.

For now, anyway, CHOPS is off the table.

Lori Nelson, external affairs manager at Hilcorp Alaska, said in an email there “are no immediate plans to reactivate the facility.”

But she added Hilcorp will continue to evaluate the potential of  Slope heavy oil.