Repsol sees nice alternative in Alaska

Compared to the Repsol’s other assets, the North Slope is stable, oil-rich and low risk, which is why the company plans to spend big

Eric Lidji

The recent activity of Repsol YPF sheds light on four phrases in the Spanish major’s press release announcing its North Slope lease acquisition, clues about what Alaska means to the global company: “oil-rich,” “low exploratory risk,” “OECD” and “boosted.” (See related story on page 1.)

“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. This acreage also helps increase the company’s presence in OECD countries,” the company wrote in March 7 release, adding, “Repsol 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 traces its lineage to a state-owned petroleum industry monopoly created before the Spanish Civil War and reorganized often in the following decades. Repsol became a private company in the late 1980s and gradually expanded internationally, buying the Argentinean company YPF in 1999 and establishing a vast Latin American portfolio.

In the past decade, Repsol made liquefied natural gas a major segment of its portfolio, while expanding in North and South America, the Caribbean, Europe, Russia and Africa.

With some 40,000 employees working in more than 30 countries, Repsol is currently one of the 10 largest private oil companies in the world. The company earned €4.7 billion of income in 2010 (around $6.5 billion) up from €1.5 billion in 2009 (around $2 billion).

“Oil-rich” and “low-exploratory risk”

By saying that the North Slope “has already shown to be oil-rich and carries low exploratory risk,” Repsol placed Alaska apart from its LNG and challenging oil plays.

Because Repsol is the third largest LNG company in the world, its portfolio is tilted toward natural gas. In 2009, the company reported total reserves of 2 billion barrels of oil equivalent, some 890 million barrels came of oil and 6.7 trillion cubic feet of natural gas.

Those LNG assets are strategically located. In the Atlantic Ocean, the company owns import terminals in Spain and eastern Canada, and an export terminal in Trinidad and Tobago. In the Pacific Ocean, the company owns an export terminal in Peru.

With talk of LNG surpluses in the Atlantic in recent years, though, Repsol might see its Alaska acquisition as a relatively easy way to boost crude oil reserves and production. Its new lease position in Alaska is both prospective and close to existing infrastructure.

Repsol’s oil portfolio includes exploration and production from many challenging, but prolific basins, like the deepwater Gulf of Mexico and the Santos basin off Brazil.

Repsol is arriving in Alaska the way several other larger players have in the past: by partnering with Armstrong Resources on acreage already proven up to some degree.

The White Hills region is onshore, close to the trans-Alaska oil pipeline and recently explored. Chevron drilled five shallow wells across the large play in 2008 and 2009.

Chevron never released well results, but the State of Alaska believes the region is both oil and gas prone. Alaska Oil and Gas Conservation Commission well logs released last year suggest Chevron was targeting oil and natural gas prospects in the Brookian formation.

Although North Slope natural gas is currently stranded because of the lack of transportation options, and the Alaska export market for LNG is jeopardized by the upcoming closing of the export terminal on the Kenai Peninsula, Repsol’s focus on global LNG and long-dormant rumors that it considered building a North Slope gas pipeline suggest that the company might be interested in gas resources as well as oil resources.

Repsol’s other state leases sit north of the nearshore Oooguruk unit, where Pioneer Natural Resources continues to expand operations, resource estimates and production rates.

Increased presence in OECD

Repsol’s decade-long focus on Latin America and North Africa brought it tremendous reserves and production, but it also placed the company at increased political risk.

In early 2008, Repsol laid out a four-year strategic plan that included “selective growth through large new projects in OECD countries.” Specifically, Repsol set a goal to have at least 55 percent of its assets located in OECD countries by 2012. While the company currently maintains upstream operations in Canada, the Gulf of Mexico, Norway, Australia and its native Spain, it also operates in Algeria, Venezuela and Kazakhstan.

Repsol recently planned to invest $10 billion in an Iranian natural gas venture, but pulled out last June amid international efforts to sanction the regime over nuclear issues.

In February, Repsol suspended Libyan operations following unrest in the North African country, cutting its 300,000-barrel per day output nearly in half, to around 160,000 bpd.

Repsol is placing its Alaska acquisition in the context of its other North American operations, particularly its recent exploration and production from the Gulf of Mexico.

The company included its Gulf of Mexico operations among five upstream projects in its strategic plan, alongside ventures in Brazil, Libya, Algeria and Peru.

The company already holds acreage offshore Alaska, including a minority stake in federal leases in the Beaufort Sea and wholly owned federal leases in the Chukchi Sea.

Boosted exploration activities

After years of partnerships and acquisitions, Repsol began focusing on exploration starting in the middle of the last decade. That strategy appears to have paid off. Since 2008, Repsol has made 35 discoveries on four continents, including 20 that it operates.

In 2009 and 2010, the company announced 15 discoveries, including four in the offshore Santos basin of Brazil, the Buckskin and Shenzi prospects in the deepwater Gulf of Mexico and discoveries in North Africa, South America and off the coast of Spain.