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NEWS BULLETIN

July 15, 2004 --- Vol. 10, No. 62July 2004

Kerr-McGee to drill up to six exploration wells offshore Milne Point unit

Kerr-McGee Oil & Gas Corp. has filed an operation plan with the state of Alaska to drill up to six exploration wells this winter offshore the Milne Point unit, three miles north of Oliktok Point, from two to three locations, using two, and possibly three, drilling rigs.

Operations Manager Todd Durkee told Petroleum News July 14 that the company included all of the options — from a single well to six wells — in its operations plan. He said the company has not committed to any rig yet.

Kerr-McGee told the state the operations will be “nearly identical” to those in the same area last winter, with access by sea ice roads from Oliktok Point to ice pads on and adjacent to Spy Island.

The Kerr-McGee (70 percent), Armstrong Oil & Gas (30 percent) Nikaitchuq unit is at Spy Island, north of Oliktok Point and the Kuparuk River unit and northwest of the Milne Point unit.

Kerr-McGee drilled two wells in what is now the Nikaitchuq unit last winter, and the company said in April that the Nikaitchuq No. 1 production tested more than 960 barrels per day of 38 degree API oil from the Sag River formation. The Nikaitchuq No. 2, drilled 9,000 feet southwest of the No. 1 well, “successfully extended the accumulation down dip,” the company said, although the second well was not tested.

“This plan is to fully evaluate the Sag River this year, to know whether we have something to go ahead with or not,” Durkee said.

Armstrong to drill at ‘Two Bits’ prospect

Armstrong Alaska Inc. will explore adjacent to the Kuparuk River unit on Alaska’s North Slope this winter. And, if that exploration is successful, the company hopes to be in production next year.

The company has filed a plan of operation with the state of Alaska for up to three exploration wells just off the western edge of the Kuparuk River unit. Armstrong calls it the “Two Bits” prospect — it took the tract with a bid 27 cents an acre higher than a competing bid from AVCG at the state’s areawide North Slope lease sale last October.

Unlike the past two North Slope exploration seasons when Armstrong was a non-operating partner in drilling prospects it had developed, this time the company will be the operator at Two Bits, although it is open to taking in a partner, Stu Gustafson told Petroleum News July 13.

Gustafson, Armstrong’s vice president of operations, said success at Two Bits would give Armstrong, which began buying leases in the state in October 2001, its first production in Alaska, and demonstrate that smaller accumulations can be economic to develop.

Finding oil at Two Bits wouldn’t just be a win for Armstrong, Gustafson said. “If Two Bits works, there’s not enough drill rigs (on the North Slope).” Success at Two Bits, he said, would be better for the industry than discovery of a huge new field, because it would mean companies can make money from developing smaller fields that the 50 million-barrel size that is the standard now.

Editor’s Note: See complete stories in the July 18 issue of Petroleum News.

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