January 26, 2005 --- Vol. 11, No. 9January 2005

Kerr-McGee farms into Armstrong’s Two Bits prospects

Big independent Kerr-McGee said this morning that it has farmed in on a third North Slope prospect with Armstrong Alaska, an affiliate of Denver-based Armstrong Oil and Gas.

The company has farmed in on Armstrong’s Two Bits project and will take over as operator of this winter’s exploration program and receive a 50 percent interest in what it refers to as the Ataruq prospect.

Just off the western edge of the ConocoPhillips-operated Kuparuk River unit, Ataruq is a possible extension of Palm and Kuparuk, an Armstrong executive said last year. Kerr-McGee plans to take over Armstrong’s exploration permits and drill one to two wells with either Nabors Alaska rig 27E or Nordic Calista’s Nordic 3, depending on which rig finishes drilling wells in the other two North Slope exploration units Kerr-McGee holds with Armstrong.

If one of the two Ataruq prospects proves up, “we will start production drilling,” Stu Gustafson, Armstrong’s vice president of operations, told The Alaska Support Industry Alliance Oct. 28.

Kerr-McGee released the news about Ataruq in a fourth quarter earnings conference call this morning. The company reported income from continuing operations for the 2004 fourth quarter of $133.8 million (86 cents per diluted common share), compared with $50.5 million (50 cents per share) for the 2003 fourth quarter.

The company’s 2004 fourth-quarter adjusted after-tax income was $167.5 million ($1.07 per share), compared with $86.9 million (86 cents per share) for the 2003 fourth quarter. Adjusted after-tax income was determined by excluding from net income the results from discontinued operations, the cumulative effect of a change in accounting principle and other items, Kerr-McGee said.

AOGCC sets hearing for gas off-take limit for Prudhoe oil pool

The Alaska Oil and Gas Conservation Commission will hold a public hearing March 3 on a potential revision of its gas off-take limit for the Prudhoe oil pool, the commission said Jan. 25.

The commission is considering a revision of a 1977 rule which limits the maximum annual gas off-take to “2.7 billion standard cubic feet per day” or “an annual average gas pipeline delivery sales rate of 2.0 billion cubic feet per day of pipeline quality gas…”

The commission said it will hold a series of hearings and gather information on a number of issues including: the impact of allowable gas off-take rate on total hydrocarbon recovery; the impact of gas sales timing on total hydrocarbon recovery; and depletion plans including mitigation measures to minimize losses.

The initial hearing will address current availability of information relating to these issues, additional information needs, a means for obtaining information needed and elements and timing of a work plan to carry out the inquiry, “including evaluation of a depletion plan to ensure that waste of hydrocarbon resources will not occur.”

Editor’s note: See full stories in the Jan. 30 edition of Petroleum News, available online on the afternoon of Jan. 28.

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