Vol. 16, No. 12 Week of March 20, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Alaska Shale: Brooks Range joins Alaska shale game

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Local independent has 100,000 acres-plus under lease on North Slope in maturation window of two or three world class source rocks

Kay Cashman

Petroleum News

An Alaska-based joint venture that is drilling the state’s only exploration well on the North Slope this winter says it has more than 100,000 acres under lease west of the Kuparuk oil field in the maturation window of two, possibly three, world class source rocks — the Shublik, Kingak and possibly the HRZ shales.

Ken Thompson, managing director of Alaska Venture Capital Group, or AVCG, conversed via e-mail with Petroleum News in mid-March about the company’s plans to find a partner with capital and expertise in Lower 48 shale plays.

In 2006, AVCG formed the joint venture and formed Brooks Range Petroleum Corp., or BRPC, the Alaska operating entity for the working interest owners, who are currently Kansas-based AVCG, which holds a 50 percent working interest in the JV’s 240,000 acres on the North Slope and nearshore Beaufort Sea; TG World Energy, a small Calgary public corporation; and Ramshorn Investments, a wholly owned subsidiary of Nabors Drilling USA, out of Houston.

The new partner will replace Calgary-based Bow Valley Energy Ltd.

“About a year ago or so, we had a company that was a great partner of ours out of Calgary called Bow Valley,” Thompson told Alaska lawmakers in February. “Bow Valley was a small public company. It was acquired by another larger public company in the UK, out of England, called Dana Petroleum.”

Dana Petroleum came to “the conclusion that the fiscal regime in Alaska was tougher than the UK … and so they decided to focus solely on the UK and told us they did not want to invest in Alaska, so we acquired their interest (about 20 percent), running our interest from 30 percent up to the current 50 percent,” Thompson said.

Looking for a partner with shale oil expertise

“My job in the last … nine months has been to pound the pavement, make a lot of contacts and get our … next investor … that can bring capital, as well as expertise, to us.”

In the same period of time the partners were assessing their acreage for source rock potential, Thompson told lawmakers.

“Starting with our working interest owners’ meeting in Anchorage on July 20, 2010, we discussed the source rock potential and began some of our geologic assessment on AVCG et al acreage and surrounding areas. We feel our JV’s almost 100,000 acres to the west around Tofkat, Big Island and even our Southern Miluveach unit area has source rock potential being in the right maturation and depth window. And we are also studying source rock and low-permeability sands potential in our Beechey Point unit,” Thompson told Petroleum News March 11, when asked to elaborate on what he and Bart Armfield, vice president of operations for BRPC, told lawmakers Feb. 18 at a House Resources Committee meeting.

Thompson also explained why AVCG and its JV partners did not go after additional acreage with shale oil potential at the State of Alaska’s annual North Slope areawide lease sale in October, which was when Great Bear Petroleum entered the state, the highest bidder on more than 500,000 acres.

AVCG and its partners thought they had enough acreage, Thompson said; “To get started in our assessment and possible future development, we thought our JV’s almost 100,000 acres out west and overall almost 250,000 acreage spread across the North Slope was enough for our JV budget, so we did not bid aggressively at the last October lease sale.”

He also said the JV partners “have made great progress on a comprehensive well log assessment and we plan visual core studies in 2011. Could these source rock shales and/or lower-permeability sands in these areas on the North Slope be the next Bakken or the next Eagle Ford development? AVCG and our JV partners plan to find out!”

JV’s focus on next frontiers

Thompson said AVCG and its partners focus “is on what we call the next frontiers for major developments on the North Slope,” which “fall into two categories for what we do.”

One, he said, is exploration for smaller fields. Smaller being “in the 25-to-50 million-barrel range,” noting it was possible they would find something larger, “but for now we’re focused on those.

Both in his days with ARCO and more recently with AVCG, looking at seismic, he “saw a lot of” 25-50 million barrel fields. (Thompson was president of ARCO Alaska before its last president, Kevin O. Meyers; then chairman and CEO of ARCO Alaska and one of four top executive vice presidents at corporate before the company’s Alaska assets were sold to Phillips Petroleum and the main company acquired by BP.)

“We believe there’s a lot of potential production in low permeability sands; there are a couple of resources, they’re more expensive to develop, but on our Southern Miluveach unit to the west … we have identified about 1 billion barrels in place, maybe about only 20 percent of that’s recoverable, but it’s … more expensive to develop.”

The second frontier for major developments that his company and its partners are “excited about” is the “oil-source shales,” believing the JV’s acreage holds “significant potential” for shale plays.

Other sources of oil on and offshore the North Slope are better suited for the majors, Thompson said, referring to heavy oil extraction and exploration and development in the federal waters of the outer continental shelf of the Beaufort and Chukchi seas.

The BRPC partners talked about the potential of their source rock acreage with more than 75 companies in their booth at the North American Prospect Expo, or NAPE, in February. They were there, Thompson said, “specifically to find a partner to join our JV with the skills, experience and technology in source rock shales as well as completions and stimulations technologies for low-permeability sands.”

Company officials also touted “a number of conventional leads and prospects,” he said.

Six companies want more information

Six companies, he said, “have asked BRPC to send them more information and to possibly schedule technical sessions to further review our conventional leads and prospects and the source rock potential”; two were international majors, two large U.S. independents and two small/medium-sized U.S. independents.

“Two more companies — a large independent and small independent — said they may be interested after visiting with their senior management further, and will let us know. Incidentally, all six of the companies that told us at the booth they wanted more information, expressed interest in the unconventional resources montage showing our acreage being in the good maturation windows of the Shublik, Kingak, Pebble Shale and HRZ shale intervals,” Thompson said. (See montage adjacent to this article.)

And then there was the tax issue

A key thing the JV partners manning the NAPE booth heard from “most of the companies that stopped by, including those who want to follow up with us,” was that “they would not have stopped — they would have kept on walking by our booth — were it not for reports in the oil industry press about Gov. Parnell’s bill to change Alaska’s ACES (production) tax structure to be more reasonable.

“In particular,” Thompson said in an e-mail to Petroleum News, “they liked the capital tax credits for development ... and lower tax rate and lower rate cap for new fields. We also let the companies know we were hoping for the credits to be reimbursed in a year instead of over two years, which helps independents quickly plow the capital back into seismic and drilling. Extension of the ‘small producer tax credit’ from May 2016 to May 2021 also attracted interest as a positive for investment.

“Quite honestly, if the Legislature makes progress in March adopting the positive changes to ACES, I believe we’ll find the partner we’re hoping for with capital and technology. If ACES’ changes do not occur, I’m not as positive. Somehow, the State needs to adopt one common goal with industry: ‘NO DECLINE.’

“I believe the conventional prospects left on the North Slope, the huge viscous oil base, the large potential in low-permeability sands, and the source rock potential all could add up to a leveling of oil production for the state. Instead of fighting over a fixed pie of revenues, the State of Alaska and industry could each enjoy a fair share of a much bigger pie of revenues,” Thompson said.

Regional, shared processing facilities

In his presentation to Alaska lawmakers, Thompson also brought up the “concept of regional processing facilities that we would like to construct that would allow smaller fields — no matter who operates them — to bring … (their production) into our regional facilities. Now that could be helpful, too, to stopping, leveling the decline.”

With the exception of Eni's new Nikaitchuq oil field, all production facilities in northern Alaska are operated by two companies: BP and

ConocoPhillips. Although oil production is down, most of the legacy fields are close to, or at, capacity for water and/or natural gas handling, which means the owners of those facilities have to back out their own oil to make room for third party oil.

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