Huge Reserves Suspected in Area of Deep Test Well : Alaska Project Has Oil Experts Guessing
British Petroleum’s bid for Standard Oil, combined with a recent drumbeat of publicity about dwindling U.S. oil reserves, has made a 14,500-foot hole in northern Alaska the most talked about oil drilling project since the ill-fated Mukluk well of 1984.
That well, on Alaska’s Mukluk Island, cost $430 million and turned out to be the most expensive drilling failure in history when it turned up dry. Now an exploratory well drilled by Chevron, British Petroleum and Standard Oil has apparently turned up evidence of massive oil reserves beneath the surface.
The project about 100 miles east of Prudhoe Bay, the nation’s biggest oil field, was finished nearly a year ago. But while the drilling information has been analyzed by all three companies, the results remain an unusually well-kept corporate secret.
Secrecy surrounding the well is “as tight . . . as I can remember in recent times in North America,” oil analyst Thomas A. Petrie of First Boston Corp. told a recent energy seminar.
Ernie Espenschied, head of Alaskan exploration for Chevron, said the three partners have learned most of what can be learned from the test well near the village of Kaktovik. Now they are deciding how to proceed strategically.
“You’ve got to get your game plan together,” Espenschied said.
He was referring partly to the fact that the well, known as Chevron KIC 1 after the Kaktovik Inupiat Corp. native organization that owns the mineral rights, was drilled on the Alaska National Wildlife Refuge. An oil strike there would likely trigger a monumental fight over the environment.
Interior Secretary Donald P. Hodel, who has repeatedly voiced concern that today’s low oil prices are setting the nation up for future energy shocks, is expected later this month to recommend that Congress open up about 8% of the South Carolina-size wildlife refuge to oil development.
Hodel will draw partly on an Interior Department study made public in November, which labeled the northernmost portion of the wildlife refuge, called the Coastal Plain, “clearly the most outstanding oil and gas frontier” in the country.
Of the test well, an aide to Hodel said the secretary told a Denver audience last week, “Those folks are very anxious to see what I recommend. Their findings must have been very positive.”
Seismic and other studies dating to 1980 have produced consistently optimistic, if widely varying, results. The Interior study said as many as 29 billion barrels of oil might lie under the Coastal Plain, of which anywhere from 600 million to 9.2 billion barrels could be recoverable.
The Wilderness Society, the environmental group leading the opposition to drilling, complains that only the rosiest possibilities have been highlighted by the Interior Department. George T. Frampton Jr., president of the society, says, “Interior set out to make a case for the oil industry.”
But if borne out, a 9-billion-barrel field would effectively duplicate the Prudhoe Bay reservoir that is supplying about one-fifth of the nation’s domestically produced oil. Conveniently for the industry in pressing its case, Prudhoe Bay’s oil will begin its natural decline in the next couple of years, and a new flow of oil from the region would fit nicely into the 800-mile pipeline running south from Alaska’s North Slope.
Chevron, BP and Standard Oil, formerly called Sohio, are on the ground floor of any new development because their $45-million bid three years ago won the right to drill the only well in the Coastal Plain. It is on a 90,000-acre piece of the 1.5-million-acre plain, which is owned by native associations, which solicited the bids.
The Kaptovik venture, 50% owned by Chevron with the balance split by BP and Standard, started drilling in February, 1985, and finished in April, 1986. Ever since, tantalizing comments have surfaced in the oil industry trade press and in company publications.
Industry officials describe an expectant atmosphere at the three companies, where resources are being mobilized to push for permission to drill and develop the area. The industry’s leading trade association, the American Petroleum Institute, is putting together tours to show reporters the Wildlife Refuge this summer as part of the lobbying effort.
The intrigue was only heightened last month when British Petroleum, which already owns 55% of Standard Oil, stepped forward with a $7.4-billion offer for the rest of the company. And while BP based its offer on such factors as the outlook for oil prices, the exchanges between the two companies have been laced with mysterious references to the outcome of the test well.
Chevron’s Espenschied stresses that no one test well is conclusive.
“Even if it flowed at 10,000 barrels a day, we would never make any major decisions on that basis,” he said. “We would have to drill several delineation wells to see how large the field was. But we agree with the Interior report that there is huge potential. We might have the opportunity of finding something as big as Prudhoe Bay.”
Sell Test Data
In addition to deciding how to manage their case against the environmentalists, the oil companies are weighing such questions as whether they should sell their test data to spread the costs of development or exploit their proprietary information in the competitive bidding that would precede any further exploration.
The Wilderness Society’s Frampton, who argues that the statistically probable oil reserves in the area aren’t worth the environmental risk of development, isn’t sure what to make of the secrecy surrounding the well.
“It’s really the most closely held thing I’ve seen in the industry in a long time,” Frampton says. “My initial thought is they might have found something. On the other hand, if they had found something and wanted to develop it, you’d think they’d tell us about it.”