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March 07, 2011 --- Vol. 17, No. 20March 2011

Armstrong brings in Repsol, drilling next winter

Armstrong Oil and Gas has done it again: Assembled an acreage position on Alaska’s North Slope and near-shore Beaufort Sea and brought in a large partner to develop prospects.

This time the partner is Spanish oil mega-major Repsol and the acreage is the 462,646 acres Armstrong, bidding as 70 & 148 LLC, took in state areawide lease sales in 2008 and 2009 south of the Kuparuk River unit, in the White Hills area and near Oooguruk in the near-shore Beaufort Sea. Some of GMT Exploration LLC’s northern Alaska acreage was also picked up in the deal. GMT is a fellow Denver independent that Armstrong brought to Alaska in early 2010. By PN’s estimates GMT held 31,565 net acres of the blocks picked up by Repsol, including a 25 percent interest in Armstrong’s White Hills acreage.

Exploration drilling on the 2,000 square kilometers, or 494,211 acres will begin next winter, per an early morning press release from Repsol, which said it had agreed to “a broad-reaching exploration and development program,” with Repsol and 70 & 148 “collaborating on all aspects of the program” and Repsol holding a 70 percent interest in the acreage.

Further, the Madrid-based company said it had committed to supplying “the investment necessary to explore and evaluate the economic viability of the resources contained in these blocks.”

The “minimum exposure” for Repsol, “including amounts to be paid to its partners and the cost of exploration to be carried out over several years, amounts to $768 million,” the release said.

“The North Slope of Alaska is an especially promising area for Repsol as it has already shown to be oil-rich and carries low exploratory risk,” Repsol said. “This acreage also helps increase the company’s presence in OECD countries. In the United States, Repsol has already successfully explored for and developed hydrocarbons production in the Gulf of Mexico.”

Repsol Chairman Antonio Brufau was quoted in the release as saying, “This deal is a perfect fit in our efforts to balance our exploration portfolio with lower risk, onshore oil opportunities in a stable environment. We are confident that our worldwide experience combined with a partner with an extensive local knowledge is going to deliver value in the near future.”

Armstrong Oil and Gas came to Alaska in 2001, picking up tracts in the state’s areawide Beaufort Sea lease sale. In 2002, Armstrong brought in Dallas-based Pioneer Natural Resources. In early 2004, Armstrong brought in Oklahoma City-based Kerr-McGee and in August 2005, Armstrong sold all of its Alaska interests to Italian major Eni Petroleum, which by that time had purchased all of Kerr-McGee’s Alaska interests from Anadarko Petroleum, which had recently acquired Kerr-McGee.

Armstrong’s North Slope prospects have been developed as Oooguruk, operated by Pioneer, and Eni-operated Nikaitchuq, both currently producing oil.

After selling its northern Alaska acreage, Armstrong acquired onshore Cook Inlet basin assets and as Armstrong Cook Inlet LLC holds 3,541 acres on the Kenai Peninsula, where it and partners are developing the North Fork natural gas field. GMT holds 20 and 30 percent of those leases.

In its March 7 press release, Repsol said it has “significantly boosted its onshore and offshore exploration activities in the last five years, resulting in some of the world’s largest oil and gas discoveries. Repsol’s upstream unit in 2010 posted a record reserve replacement ratio of 131 percent and incorporated resources that have significantly boosted the company’s future prospects.”

The major has interests in Alaska, but none — until now — on state acreage.

The company is a 20 percent partner with Shell and Eni, each 40 percent, in outer continental shelf Beaufort Sea acreage, and a 20 percent partner with Eni in other acreage in which Eni holds 80 percent, from lease sales 195 and 202. Repsol did not bid in either sale 195 in 2005 or sale 202 in 2007, but subsequently partnered in acreage from those leases.

Repsol acquired OCS acreage on its own in 2008 in Chukchi Sea sale 193; exploration activities on that acreage are currently enjoined under order of the U.S. District Court for the District of Alaska. The company bid $15.6 million on 104 blocks and was the high bidder on 93 blocks for $14.4 million.

Repsol has not said if it was looking at operating its Chukchi leases, but the company was not partnered with other bidders in the 2008 Chukchi lease sale. Rumors of a potential partnership with Shell, Eni and/or Statoil have made their way to Petroleum News, but none have been confirmed by any of the companies.

Repsol does not currently hold any leases with the State of Alaska.

See story in March 13 issue, available online by 11 a.m. Friday, March 11, at www.PetroleumNews.com

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