A northern Alaska oil discovery just got a lot bigger, company says

Estimates to be confirmed

Because exploration drilling at Horseshoe has taken place only recently, it is extremely unlikely that estimates associated with the wells have been independently confirmed by a third-party company, said David Houseknecht, a geologist with the U.S. Geological Survey’s Energy Resources Program for Alaska.

In late 2015, the companies announced the Nanushuk discovery as a major new opportunity in Alaska, after a third-party engineering firm, DeGolyer and MacNaughton, calculated “contingent” oil reserves to range between 497 million barrels and 3.76 billion barrels. The companies have said the discovery could produce at least 120,000 barrels of oil daily, potentially providing a much-needed production boost to Alaska’s dwindling oil economy.

“The contingent resources currently identified in the Nanushuk play in Alaska amount to approximately 1.2 billion barrels of recoverable light oil,” Repsol said.

The 1.2 billion barrels includes oil in the existing Pikka unit and the Horseshoe prospect combined, said Kristian Rix, a Repsol spokesperson reached Thursday in Madrid, Repsol’s headquarters.

Rix would not say how much daily oil production might increase from the 120,000 barrels associated with Pikka, now that the size of the play is much larger.

“I wouldn’t want to put a figure on that,” he said. “We have to make sure we have our i’s dotted and our t’s crossed before we do that.”

In the coming months, the company will analyze the prospect and consider development scenarios for Horseshoe, he said.

“We’ve scored a good goal in the game, and we have to play the rest of it,” he said.

Oil taxes debate

The Alaska Legislature currently is debating whether to increase North Slope oil production taxes and decrease tax credits to help the state battle a fiscal crisis brought on primarily by low oil prices. The oil industry opposes the changes.

The new oil discoveries “have the potential to devastate the budget if we continue a system that requires the state of Alaska to pay billions of dollars in costs with no assurances of future revenue, especially at low oil prices,” said Andy Josephson, D-Anchorage, co-chair of the House Resources Committee.

House Republicans fired back, arguing that the discovery shows that the tax system, approved by Alaska voters when they rejected a repeal referendum in 2014, is working.

“The dominant message we’re hearing from Alaskans during public testimony is do not change the current system,” said Rep. David Talerico, R-Healy.

Rix said the timing of Repsol’s statement was not tied to that debate. Instead, Repsol, a publicly traded company on the Spanish stock market, is “duty bound” by Spanish regulatory laws to disclose such information. The company, once a state enterprise in Spain, was privatized in the 1990s.

The discovery is the largest for the company since its work on the giant Perla offshore natural gas field in Venezuela in 2009, he said. Italian company ENI, a  North Slope producer, was part of that discovery, Repsol has said.

This latest news could materially affect the company,  he said.

“It is something you have to disclose as soon as you have firm data,” he said.

A game-changing discovery?

Geologists familiar with the North Slope have said the discovery could be a game-changer in Alaska, tapping a long-overlooked, relatively shallow formation. A recent lease sale by the U.S. Bureau of Land Management seemed to bear that out, with companies showing renewed interest in the Indiana-size petroleum reserve, leading to the agency’s largest annual lease sale in Alaska in more than a decade.

Armstrong has applied with the U.S. Army Corps of Engineers for an environmental review of its development plans for Nanushuk. The company last year had targeted development of an area about 6½ miles northeast of Nuiqsut, an Inupiaq village of 475.

Now, with Repsol saying the play is known to extend to the south, additional production beyond the original estimate can be expected to increase from the 2015 estimates. The Horseshoe wells were about 12 miles south of Nuiqsut.

Repsol holds a 25 percent working interest in the Horseshoe discovery and a 49 percent working interest in the Pikka Unit. Armstrong is the operator and holds the rest of the leases, the statement said.

The companies estimate first production in 2021.

“Great news for Alaska”

Gov. Bill Walker called the announcement “great news” for Alaska and said the state’s North Slope lease sale in December generated $17 million. The size of the sale was surprisingly high.

“We must all pull together to fill an oil pipeline that’s three-quarters empty — and today’s announcement shows measurable results of that hard work,” Walker said, in an emailed statement.

U.S. Sen. Dan Sullivan, R-Alaska, said in a statement that policies he had worked on to encourage oil development when he was Natural Resource commissioner under former Gov. Sean Parnell are bearing fruit in the oil patch.

“I believe that this announcement — with the state working together as a partner with Congress, the new administration, and the private sector — could usher in a new renaissance of economic growth and job creation in Alaska,” he said.

Alaska’s current Resources commissioner, Andy Mack, said the announcement follows other good news suggesting the “tremendous potential” for much more oil production near the northeastern edge of the NPRA. That area is home to ConocoPhillips Alpine oil field in the Colville River Unit, discovered in 1994. The field saw record production of 139,000 barrels of oil daily in 2007.

Now, interest in the area is growing again.

“We are pretty excited because it is a confirmation of the notion that this area is really ripe for activity,” he said.

More recent discoveries

ConocoPhillips in January announced it had made a large discovery in NPRA, called Willow, that could produce up to 100,000 barrels of oil daily.

In one sign of the industry’s increasing interest, ConocoPhillips hopes to expand the Colville River Unit to absorb an additional 9,150 acres of state land in the area. The state has rejected the expansion so far, suggesting Alaska might be better off auctioning off that acreage to competitors to bring in extra state income from bids and possibly faster production.

Also, about 75 miles northwest of Nuiqsut in Smith Bay and just north of NPR-A, Caelus Energy Alaska said it too is sitting on a large prize. That offshore discovery announced last year could hold recoverable oil ranging from 1.8 billion to 4 billion barrels, Caelus has indicated, but that field is far from industrial infrastructure, unlike the discoveries near Nuiqsut.

The state natural resources department will learn more in the future about the Horseshoe prospect, when it has a chance to access confidential information associated with the well, Mack said.