Texas oil company announces big offshore Alaska discovery

A Texas petroleum drilling company announcedTuesday it has made a large-scale oil discovery in state waters offAlaska's North Slope.

Dallas-based Caelus Energy Alaska LLC announced a find of 6billion barrels of light oil on its state leases in Arctic Oceanwaters of Smith Bay, about 96 kilometres southeast of Barrow and 725kilometresnorthwest of Fairbanks.

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Chief operating officer Jim Musselman called the discoveryexciting for the state, which receives upward of 90 per cent of itsrevenue from the oil industry. As North Slope production hasdiminished, the trans-Alaska pipeline is operating at only aboutone-quarter capacity.

"It has the size and scale to play a meaningful role insustaining the Alaskan oil business over the next three or four
decades," Musselman said of the discovery in a prepared statement.

The Smith Bay development could deliver 200,000 barrels per dayof light oil to the trans-Alaska pipeline, increasing volume andreducing the average viscosity of oil, which would help extend itsviability, the company said.

Wells just 3 kilometres offshore

The discovery is based on 326 square kilometres of three-dimensionalseismic data and a pair of wells drilled this year from ice pads.

The company did not have time to flow test either well. Flowtests detect flow rates and pressure and help assess the capacity ofa field.

The company did, however, collect extensive side-wall coring thatconfirmed the presence of quality sandstones containing oil, saidspokesman Casey Sullivan in an email response to questions.

The wells were less than 3.2kilometres offshore in water just oneto two metresdeep.

Another appraisal well and seismic work is planned to improveestimates of the oil in place. The Smith Bay complex may hold 10billion barrels of oil, the company said.

Production possible by 2022

Production is years away. The next appraisal well is planned for2018, Sullivan said. The regulatory process takes an estimated threeto five years. If all goes as planned, he said, oil could flow tothe trans-Alaska pipeline in 2022.

The company is evaluating options for a drilling platform.Hilcorp Alaska LLC, a subsidiary of Houston-based Hilcorp EnergyCo., has proposed building a gravel island for its Liberty prospectin the Beaufort Sea. The island could be used for five or moreextraction wells to tap oil 10 kilometresfrom shore.

Caelus Energy Alaska Smith Bay, has a 75 per cent ownership inthe state leases at Smith Bay. NordAq Energy Inc. holds a 17.5 percent interest, and L71 Resources LLC holds a 7.5 per cent interest.

State incentives played a role in the discovery, Musselman said.

"Without the state tax credit programs, none of this would'vehappened, and I'm not sure Caelus would've come to explore inAlaska," he said in the announcement.