From lost property to hot property

The harsh wilds of Alaska are at the forefront of an oil boom, and one Australian exploration company is poised to hit pay dirt.

Success in the oil market requires knowledge, resources, luck and a dash of risk. It’s a tricky balance to maintain: as the finite resource is depleted, the risk required for success increases.

With only an estimated 40 years’ worth of oil left in the world, the industry is revisiting previously oil-rich sites in the hope of squeezing the last few drops, or tapping into a hitherto unknown well. Either way, it’s risky business.

‘‘When we went to Alaska, they said we were crazy,’’ says Dave Wall, managing director of Perth oil explorer 88 Energy.

The catalyst for the move was an oil price crash. Alaska, a traditionally oil-rich state, had become lost property.

‘‘The conventional thinking said it was too remote, too hostile for a shale play,’’ Wall says.

The downturn meant a dearth of competition. 88 Energy found a partner in Paul Basinski, president of Burgundy Xploration, who’d spent several years putting the project together. ‘‘Key to Paul’s concept was prospecting for viscosity, where liquid oil behaves more like a gas,’’ Wall says. This ‘‘volatile’’ oil’’ flows at a higher rate than regular black oil. It was unconventional, but just the opportunity 88 Energy was looking for. ‘‘Timing is everything, and the timing was right. To us, it was more an opportunity than a risk,’’ Wall says. The perceived risk was 88 Energy’s biggest incentive: to jump in when prices were so low. ‘‘People had abandoned the industry. No one spends during a bust. We saw the move as a way to reduce costs,’’ Wall says. It’s paid off. 88 Energy now has about 200,000 hectares in an oil-rich province, with infrastructure to boot. The Trans-Alaskan pipeline system, constructed in the 1970s, runs through the main project. Additional infrastructure, close to a new project, was commissioned in 2016. ‘‘We spent three years positioning ourselves in Alaska, the low oil price gave us a huge advantage,’’ Wall says. Adding to the risk, 88 Energy decided to make a shale play. ‘‘A shale play in Alaska isn’t without hurdles, but exploration efficiencies in other successful plays in the lower 48 that could be applied to our project, meant that it may not be as crazy as it seemed,’’ Wall says. Those efficiencies led to a boom in shale that’s doubled US oil production from 2005 levels.

‘‘Alaska is one of the oiliest places on the planet and due to its remoteness and historical oligopoly by the majors, it remains underexplored,’’ Wall says.

‘‘This is highlighted by a recent one-billion-plus barrel discovery, the largest of its kind onshore in North America in 40 years.’’

88 Energy’s Alaskan shale prospect takes its name from a unique wine distilled from frozen grapes – apt for the Arctic location: Project Icewine.

‘‘Icewine is our primary project, located on Alaska’s North Slope, right near some huge oil discoveries,’’ Wall says.

88 Energy’s current challenge is retrieval.

‘‘Making the shale work for us is definitely an engineering challenge,’’ Wall says. ‘‘Much of what we’re doing is the first of its kind in the formation we are targeting. In our first year, we took care to establish the right conditions were present for a successful shale play. The results were exceptional.

‘‘In our second year, we conducted a production test – that remains ongoing and is due to restart after a winter break, that gave us time to review the operational plan.

‘‘When we recommence testing we will utilise nitrogen lift, which will accomplish the goal of removing the fluid injected into the reservoir.

‘‘This should allow the hydrocarbons to flow as we’ve already shown the ingredients for success are present.’’

Success isn’t far away, he says: ‘‘The plan is to test the shale well by May, with a result in June.’’

If 88 Energy’s gambit pays off, Wall hopes to entice another partner by the end of the year.

‘‘We’re confident. It’s high risk and, despite mitigating that risk as much as we could, there are no guarantees. That said, the prize would be in the billions of barrels of oil.’’

88 Energy’s Alaskan shale prospects are bolstered by two other projects: the maturing conventional portfolio at Project Icewine, which has more than 2 billion barrels of recoverable potential and the relatively new Yukon Gold Project – 6070 hectares of land that contains an historic oil discovery.

‘‘After the leases lapsed, we bid on the Yukon Gold site and won,’’ Wall says. ‘‘It’s a mediumterm asset. Once we’ve made the most of Icewine, we’ll take a closer look at Yukon Gold.’’

88 Energy is in a great position to capitalise, as the oil industry recovers. Success won’t be down to luck, Wall says.

‘‘The thing about risk is, if you work hard and don’t take shortcuts, you mitigate that risk. In tough times, you need to work 10 times harder than the competition,’’ he says.

‘‘Yes, we’ve taken a risk, but we’ve worked hard to make it pay off.’’